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CHAPTER 1: INTRODUCTION
Motivation
In July 2018, a trade war was launched between the US and China. The US successively
increased tariffs on a total of $250 billion in annual imports of Chinese goods, stating that it
wished to safeguard US companies from unfair Chinese trade practices and reduce the bilateral
trade deficit. China responded with tariffs on $110 billion of imports from the US (USTR
Statement on Section 301 Tariff Action Regarding China, 2019). The trade tensions between the
two economic superpowers resulted in significant and rapid reduction in bilateral trade in taxed
goods (Peters, 2018), illustrating how disruptive trade actions can be.
Trade wars continue to increase and companies are ill-equipped to manage these
disruptions. Trade wars disrupt global supply chains, leading to problems like production
stoppages and shortages to customers, significantly impacting firms and their customers. Further,
increased tariff costs reduce profits for organizations, financially impacting firms.
Although scholars have been increasingly researching the importance of supply chain risk
management, the literature continues to lack investigations related to trade policy as a supply
chain risk and how firms can protect themselves (or potentially benefit) from trade disruptions by
adopting the appropriate procurement strategy. Although the economics literature that studies
trade policies and the operations management literature that studies supply chain risks are
mature, the literature’s stage of development related to this particular area of study is nascent.
Presently, there are few studies investigating how firms can protect themselves from trade risks.
Additionally, scholars are typically not focused on trade compliance, thus lending this topic to
further investigation.
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Every step in the supply chain process must be explored to ensure compliance and adherence
to country requirements. Country requirements are defined as compliance requirements
consisting of laws, regulations and rules which are implemented by a country (Maya, 2022).
These regulations promote (or restrict) trading activities, referred to as global trade,
encompassing importation and exportation of goods and services internationally, while requiring
adherence to laws within a country (Maya, 2022). However, the rapid growth of global trade has
resulted in misunderstanding when evaluating a product’s lifecycle encompassing development,
country of origin, processing, product tariff classification code assignment, handling, and
transportation (i.e., exporting, importing, and re-exporting). All these elements require thorough
investigation prior to delivery of the final product to consumers. Many of these issues can either
be exacerbated or minimized by an affected firm’s procurement strategy. For example, firms
with all domestic suppliers are subjected to fewer trade issues than firms with suppliers located
in multiple countries. The nature of the buyer-supplier relationship can also be considered vital.
Firms that collaborate closely with suppliers might be more aware of, and more capable of
addressing, emerging trade issues than firms with only transactional supplier relationships.
Consequently, this research is motivated to explore how trade policies influence supply chain
organizations, and the procurement strategies employed in supply chain organizations to mitigate
against disruptions due to changing trade policies.
Research Questions
To explore the phenomenon of trade actions and the procurement strategies in supply chain
organizations to mitigate against trade policy, the following questions are proposed:
• How are supply chain managers perceiving and evaluating the disruptions due to
changing trade policies?
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• What procurement strategies can supply chain managers use to protect against trade
actions?
• What actions are supply chain managers actually taking in response to changing trade
policies?
To adequately address these questions, this dissertation adopts the two-paper format. The first
paper is a qualitative study of supply chain manager perceptions regarding disruptions due to
changing trade policies. In this study, semi-structured interviews with supply chain managers are
used to explore the subsequent supporting research questions:
• RQ1: How do supply chain managers prioritize trade actions relative to other types of
supply chain disruptions?
• RQ2: What factors or conditions lead companies to make/not make changes to their
supply base following a trade action?
• RQ3: What sourcing strategies are top-of-mind to mitigate trade actions?
Insights from the first paper are used in the second paper to explore the characteristics of
procurement strategies in firms and how firms targeted by trade actions make significant changes
to their supply base (if any). The second paper consists of a quantitative analysis empirically
examining specific hypotheses which will be introduced in Chapter 4. This is accomplished by
analyzing sample Chinese firms in the IT hardware and semiconductor business sector that have
been impacted by US trade actions.
Importance of the Research Question
In today’s environment, firms operate in a world where trade action disruptions occur
frequently across industries as trade disputes increase. Globally, the US is the largest economy
and trader, and China represents one of the most challenging US economic relationships
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(Williams, 2022). In 2018, three trade action policy tools were renewed by the Trump
Administration to apply trade tariffs and other restrictions on certain goods from China. These
policy tools are noted as Section 201, Section 301, and Section 232 of the Federal Register. The
Trade Act of 1974 grants the Office of the US Trade Representative (USTR) to address unfairly
traded goods and trade commitment violations (Williams, 2022). Section 201 and Section 301
derive from the Trade Act of 1974 and address import injury from foreign trade barriers. Section
232 derives from the Trade Expansion Act of 1962 and addresses trade related national security
violations (Williams, 2022). These trade policy tools had not been employed since the World
Trade Organization (WTO) began in the 1990’s, resulting in an unprepared supply chain eco-
system in 2018 when these policy tools were abruptly re-enforced (WTO, 2022). Thus, firms did
not know how to react when they were suddenly faced with challenges encompassing sourcing,
importation, and exportation of goods from global partners resulting in immediate supply chain
disruptions, impacting the flow of goods (Maya, 2022).
On average, companies can anticipate supply chain disruptions to take place every 3.7
years, imposing a detrimental financial impact on organizations (McKinsey, 2020). Additional
classes of disruptions encompass natural disasters, pandemics, cyber threats, geopolitical
uncertainties, economic oscillations, and regulatory changes. Understanding the interrelated
dynamics of these disruptions is essential for formulating advanced strategies geared towards
strengthening the resilience of supply chains. Further, the value of intermediate goods traded has
tripled since 2000 to more than $10 trillion annually (McKinsey, 2020). This demonstrates that
businesses must be agile and well equipped to handle supply chain disruptions. Despite this,
supply chain disruptions resulting from changes and uncertainty in the geopolitical environment
are not well-studied.
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Although it might seem evident that firms should adopt measures to protect themselves
against changing trade policies, it is not obvious what steps (if any) they should take in either the
short term or the long term. For example, the US government placed a ban in 2018 that
prohibited US firms from supplying ZTE, a Chinese telecommunications manufacturer (Jacobs et
al., 2022). The ban was unexpectedly announced and then unexpectedly reversed four weeks
later. If firms had embarked on significant changes in the short term, their efforts would have
been wasted. Because of this, some might advocate that firms should just wait-and-see rather
than react. Others suggest that firms should be working toward a more robust supply chain
design that is less susceptible to future trade shocks. Results from this dissertation research
contribute to this conversation by considering the mindset of practicing supply chain managers
and by examining the empirical evidence of whether supply bases are significantly changing
subsequent to trade actions. This research is relevant for managers of multinational enterprises,
researchers of supply chain strategies, and policymakers involved with trade decisions.
Although firms certainly cannot prevent the occurrence of all disruptions, they can
position themselves to be better prepared to mitigate the impact of disruption risks, including
those related to trade policies. Firms have the capability to strategically position themselves to
prepare for internal risks from sourcing, manufacturing, and delivery that can lead to major
disruptions of material flows. One avenue to address this is by enhancing adaptability and
flexibility as a dynamic capability, ultimately offering supply chain resilience to mitigate risk
(Um & Han, 2020). By studying how firms deal with trade policies, this dissertation aims to help
firms achieve supply chain organization agility, flexibility, velocity, visibility, and collaboration
to mitigate risk associated with trade actions.
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CHAPTER 2: OVERVIEW OF THE RESEARCH AREA AND APPROACH
Foundational Literature Review
Trade disruptions are unanticipated and can exploit weak spots in supply chain
operations, dependent on the organizations’ effectiveness in monitoring and addressing risk
through the implementation of mitigating strategies (McKinsey, 2020). This problem is the focus
of exploring literature within trade policy (economics), risk mitigation (supply chain
management), and procurement strategy (supply chain management). The literature supports
investigating how firms can protect themselves against trade disruptions as there is currently
little literature directly identifying this concern.
Method for Conducting the Literature Search
Methods used to conduct the literature search include articles retrieved from Google
Scholar and JSTOR. Keyword searches located articles related to the relevant domains, including
global trade, trade laws, supply chain management, supply chain risk, trade risk, international
trade barriers, SCM procurement strategies, non-compliance, and country of origin. Often, search
words were refined and combined to ensure appropriate articles of significance were located
(e.g., supply chain risk and trade law). During the search methods process, I found a plethora of
articles from supply chain management journals (e.g., Journal of Operations Management).
However, it was challenging to locate trade action specific articles. Figure 1 depicts the unique
streams of literature that inform the research questions.
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Figure 1
Relevant Literature
Economics of Trade Policy
Trade actions are used to either restrict (or encourage) imports, increasing (or decreasing)
the cost of goods and services purchased from another country, and making them less (or more)
attractive to domestic consumers. Trade actions are typically intended to benefit the importing
countries, as the country implements the policies which must be adhered to. These policies set
the organizational tone for corporations as they must comply with regulations set forth by their
government (Elzinga, 1987).
Economists define trade policy as rules and regulations that concern trade relations
between countries. Trade policies are specific to each individual country and created by public
officials (policy makers) who implement specific regulations, which must be adhered to between
countries (Elzinga, 1987). These regulations include the implementation of taxes which are
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imposed on import and export transactions, resulting in tariffs, economic sanctions, trade bans,
trade credits, etc. which must be paid by the importing entity. Trade actions play a vital role in
geopolitical matters and are defined through various forms of policies provided in Table 1.
Table 1
Trade Action Types
Trade Action
Definition
Trade tariffs
Customs duties on merchandise imports. Tariffs give a price advantage
to locally produced goods over similar goods which are imported, and
they raise revenues for governments (WTO, 2022).
Economic sanctions
Restrictions concerning specific sectors of economic activity, including
import or export bans on certain goods, investment bans, prohibitions
on supplying certain services, etc. (GSC, 2022)
Trade bans
Prohibition of a country or various countries in the act of commerce and
trade (export bans, trade restrictions, etc.) (GSC, 2022).
Trade credits
Commercial financing, consisting of an agreement between two parties
permitting the exchange of goods and services without money being
exchanged immediately (Institute, 2020).
Governments implement trade policies primarily to promote the growth and development
process of their own country, but sometimes to aid the growth and development of allied or
friendly countries. International trade has the ability to “impact welfare directly via the cost of
living, employment and wages, and the investment of government revenues in public goods”
(Santos-Paulino, 2017, p. 693). According to Santos-Paulino (2017), trade policy has the ability
to generate benefits in terms of both resource allocation and economic growth for citizens and
firms in the country that enacts the trade policy. However, trade policy also has the ability to
create challenges in the country that enacts the trade policy, inflicting damage for firms in that
country if they can no longer conduct routine business with trade partners (Allen, 2021).
Governments have a role to play in promoting new industries and supporting the growth
of key industries recognizing that economies of scale are a key factor in influencing industry
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development. For example, a developing economy may need tariff protection and domestic
subsidies to encourage the creation of capital-intensive industries. Companies can subsequently
attain economies of scale by increasing production and lowering costs (Neary, 2009).
Trade policy has an array of theories, which are subdivided in two categories. In classical
economics, trade policies were typically studied at a macro- or country-level. Scholars initially
began analyzing country level theories due to economic sustainability which encompasses
country focus. This consideration has since evolved to analyzing firms rather than countries, due
to the growth of supply chain management that supports the production of goods through
expanded global sourcing opportunities, ultimately stimulating economic welfare (Liu, 2015).
Major theories within the first category are defined in Table 2.
Table 2
Country-based Economic Theories of Trade Policy
Theory
Definition
Mercantilism
Mercantilism emerged in the 16th century as a principle that governments
were to regulate trade in an effort to generate national wealth
(International Trade Theory, 1970).
Absolute advantage
Encourages countries to focus on manufacturing items which they are
proficient in versus other countries (Management, 2022). For example,
the act of manufacturers producing better quality goods at an increased
rate then competitors, thus, having a greater quantity of goods and
services resulting in the country having an unbeatable dominance due to
superior production capabilities (Brecher et al., 2002).
Comparative advantage
Takes a comparative approach in encouraging businesses to continue to
manufacture goods, although they may not have superior production
capabilities as their competition (Management, 2022). Thus, a
comparison among countries and/or firms can be analyzed in terms of
opportunity costs versus production capabilities (Brecher et al., 2002).
Heckscher-Ohilin
Encourages businesses to focus on producing goods which their country
has excess supplies in developing that good (and/or product)
(Management, 2022).
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More recently, economists have started to study trade actions at a firm-level to
understand the flow of goods which stimulate consumer purchases, spurred by firm
competitiveness enhancing global development (Agrawal & Kamakura, 1999). The second
category comprises firm-based theories such as country similarity, product life cycle, global
strategic rivalry, and Porter’s national competitive advantage (Agrawal & Kamakura, 1999)
defined in Table 3.
Table 3
Firm-based Economic Theories of Trade Policies
Theory
Definition
Country similarity
Individual firms in the same economically developing country
will have similar preference thus, leading to global strategic
rivalry.
Product life cycle
Product life cycle supports trade policy through its
demonstration of evolutionary phases as every product has
three stages within its life cycle consisting of new product,
maturing product, and standardized product. These phases help
in showing how products are first introduced via production and
exported for market entry resulting in distribution.
Global strategic rivalry
Theory focuses on gaining a competitive advantage against
global firms who are in the same industry.
Porter’s national
competitive advantage
States that competitiveness is dependent on innovation
encompassing items and processes at a firm level (firm level
theory). This supports trade policy in understanding the national
competitive advantage that nations possess, which have the
ability to improve a country’s economic stability.
For my specific research context, initial focus has been placed on comparative advantage
theory (Table 2) so that I may be able to assess how trade actions influence firm performance. In
economics, a comparative advantage can be defined as an occurrence which takes place when a
country is capable of producing a good (or service) at a lower cost than another country
(Sderberg et al., 2017). The comparative advantage economic theory has been analyzed to
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investigate the changes in firm performance when trade actions are enacted. This has been used
to demonstrate trade policy volatility and unpreparedness in supply chain organizations.
Chakraborty et al. (2015) investigate how stock performance in US industries engaged in
international trade activities move both positively and negatively with performance of the dollar,
dependent on the business activity (i.e., importing vs. exporting). The research reveals that
“import-orientated companies move positively with the performance of the dollar, but the stock
performance of export-oriented companies tends to move against the dollar” (Chakraborty et al.,
2015, p. 1059). This analysis contributes to the literature as it analyzes the exchange rate policy
and exchange rate movements that have great impact on the domestic economy while also having
effects on other economies linked through international trade.
Trade wars typically cause increases in tariffs, which result in currency impacts. For
example, for exporters, import tariffs have the potential to cause a significant fall in revenue due
to the impact of the exchange rate. Therefore, to identify the impact of tariffs we must investigate
how exchange rate fluctuation impacts different types of companies with different import/export
orientations. There are many existing studies that demonstrate that international trade lies at the
heart of the exchange rate exposure, which impacts the stock market (e.g., Hentschel & Kothari,
2001; Jorion, 1991; Tesar & Dominguez, 2006). Research has validated that a firm with no direct
or indirect international trading activity has little exposure to exchange rate fluctuations and
import and export-oriented companies should have quite different currency exposures
(Chakraborty et al., 2015). When left unhedged and unprotected against loss, these different
exposures can be reflected in stock returns.
Organizations contribute substantial efforts to the management of foreign exchange risk,
which is perceived as a source of risk to be actively hedged against (Jorion, 1991). Analyzing
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how corporations react to exchange rate exposure provides confirmation that exchange rates have
implications for financial decision-making and for the profitability of firms. Thus, reacting to
exchange rate risks can provide insight on the preparedness in supply chain organizations to
mitigate risk against volatility in trade actions. “Some economists claim that exchange rate
volatility increases uncertainty and thus discourages trade” (Poon & Hooy, 2013, p. 183).
Campa and Goldberg (2005) conducted a cross-country and cross-time study on the
extent of exchange rate pass-through into the import prices of 23 Organization for Economic Co-
operation and Development (OECD) countries. They determined that dollar appreciation renders
U.S. exports more expensive and hurts the demand for exports. This reduced demand results in
decreased sales and less profitability of the exporting firms. Conversely, dollar appreciation
reduces the cost of imports and increases the profitability of an import-oriented firm. When left
unhedged, these differential impacts on profitability can affect financial performance and
generate the negative exposure estimates for exporting firms and positive exposure estimates for
importing firms (Campa & Goldberg, 2005).
Chakraborty et al. (2015) demonstrated the relationship of cross-sectional variation of the
dollar risk exposure across different industries to variations in imports and exports. These
relations were identified as a result of focusing on cross-sectional variation instead of time-series
variation and emphasize trade imbalance instead of total trades. They also demonstrated that
once a cross-sectional linkage was established between a risk exposure estimate and
firm/industry characteristic, companies were able to exploit this linkage to sharpen the
identification of the risk exposure (Chakraborty et al., 2015).
Tesar and Dominguez (2006) examined the relationship between exchange rate
movements and firm value, identifying that organizations engaged in international trade focus on
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risk management that reduces return volatility. This concept is frequently termed as hedging and
is contrary to risk management which increases return volatility. Jorion (1991) used the modern
portfolio theory to support that investors are not willing to pay a premium for firms with active
hedging policies if foreign exchange risk can be diversified away through the use of derivatives.
As a result, more stable earnings should not change the cost of capital nor add value to the firm.
Therefore, hedging will be valuable to investors only if foreign exchange risk is priced in the
stock market and if some type of market segmentation occurs.
Hentschel and Kothari (2001) provided analysis that derivatives are used by
organizations to hedge risk as they have the capability to mitigate portfolio risk. Analysis
concluded that organizations who primarily focus on mitigating risk are multinational
organizations such as manufacturers involved in import and export activities. This validates that
supply chain organizations circumvent risk. However, there remains the question whether there
is a lack of strategies in supply chain organizations to leverage against trade actions.
Additionally, the study of exchange rate fluctuations to support this theory is not substantial in
providing analysis that tariffs specifically impact the dollar appreciation in relation to exchange
rate exposure, which has the potential to help the financial performance of import-oriented
companies but hurts the financial performance of export-oriented companies. According to
Campa and Goldberg (2005), exchange rate exposure may be linked to a number of firm and
industry-level characteristics. Thus, one cannot focus on any one variable to support the impact
of financial performance. Additionally, there is no analysis on how firms can protect themselves
from tariff risks, further demonstrating the need to conduct analysis within this sector.
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Supply Chain Management: Disruptions and Risk Mitigation
Supply chain is a widely used term with no universal definition. Supply chains consist of
entities connected by the physical flow of materials and information encompassing sourcing of
goods and services required for production, manufacturing, logistics (i.e., transportation of
goods), and distribution of materials to consumers, businesses, or other customers who purchase
goods. Supply chain activities are vital to the transformation of raw materials to finished goods
which are transported to their final destination.
Supply chain disruptions are defined as undesirable events which take place, damaging
the supply chain and performance of firms (Wagner & Bode, 2008). Supply chain disruptions
can include issues from any part of the supply chain: supply (e.g., supplier bankruptcy, material
shortages), manufacturing (e.g., internal labor problems, product quality lapses), and/or logistics
(e.g., lost or damaged shipments, delayed deliveries). Causes of supply chain disruptions are
varied and can range from weather conditions to terrorist attacks to geopolitical issues. These
disruptions are often random, resulting in disequilibrium within firms’ supply chain. Thus, firms
employ supply chain risk mitigation to bring forth measures which can support with anticipating
or coping with disruptions (Friesz, 2011).
Disruptions can be defined as a firms’ inability to match demand and supply (Hendricks &
Singhal, 2005). Hendricks and Singhal (2005) investigated the long-term stock price effects and
equity risk effects of supply chain disruptions during 1989–2000. During this period, evidence
indicated that firms did not quickly recover from disruptions reflecting high equity risk.
Hendricks and Singhal (2005) demonstrated that the root causes of disruptions are challenging to
correct as supply chains are vulnerable to disruptions due to the continuous changes which occur
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in product markets. Hendricks and Singhal (2005) found that risk disruptions are increasing due
to the following four factors:
“(1) increased complexity due to global sourcing, the large number of supply chain
partners, the need to coordinate many tiers of supply chains, and long lead times; (2)
increased reliance on outsourcing and partnering that has heightened the interdependencies
of different nodes of the global supply network, making it more likely that a disruption or
problem in one link of the supply chain will quickly ripple through the rest of the chain,
bringing the whole supply chain to a halt; (3) single-sourcing strategies may have reduced
purchase prices and the administrative costs of managing the supplier base but may have
increased the vulnerability of supply chains if a single supplier is unable to deliver on time;
and (4) focusing on reducing inventory, excess capacity, and slack in the supply chain has
more tightly coupled the various links, leaving little room for errors” (p. 51).
Geopolitical issues, including trade actions, are an important cause of supply chain disruption.
Geopolitical issues have increased supply chain vulnerability because governments are using
trade policy tools to address geopolitical matters. These policy tools consist of implementing
regulations, trade tariffs, sanctions, and bans to gain economic favor as the government deems
suitable. However, the deployment of these policy tools has an adverse effect on supply chains as
it is not only harming foreign firms but also domestic firms (Jacobs et al., 2022).
Trade actions are uncertain and outside of scope for a firm to control since they originate
with governmental policy makers. The costs imposed on firms due to the supply chain
disruptions resulting from government policy implications can exceed monetary concerns,
sometimes extending to firm viability as firms can jeopardize their competitive advantage
amongst their global competitors, resulting in their supply chain operations no longer being
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viable (Sodhi et al., 2012). Unexpected changes in trade actions are a supply chain disruption as
organizations who source their products from overseas are severely impacted. The cost of trade
actions results in increased prices to make goods, which business customers or individual
consumers must now pay more for (Neary, 2009).
Trade actions have the potential to cause firms to switch suppliers due to country
restrictions being imposed. Trade actions can result in specific suppliers being banned and/or
tariffs on countries being enforced, increasing the cost of doing business with the specific
(targeted) suppliers. Changing suppliers has the potential to reduce inventory levels to a
dangerous point resulting in lost customers or other changes imposed in a firm’s downstream
demand. Additionally, it is important to note that changing suppliers has the capability to also
impact quality. Thus, firms must remain proactive in modifying sourcing to avoid risks
associated with trade actions.
Supply chain risks contribute to overall business risks, and it is vital to note that supply
chain disruptions can occur inside or outside. Outside disruptions include issues such as trade
actions and inside disruptions include production issues or labor supply challenges (Narasimhan
& Talluri, 2009). Narasimhan and Talluri (2009) emphasize that there is a need to implement an
effective methodology for firms to be better equipped to identify, anticipate, and assess supply
chain risks as risks can severely impact firms financially.
Supply chain disruptions are unanticipated and have the potential to cause harm to
organizations operationally and financially, resulting in costly recoveries. Thus, organizations
must be readily equipped to withstand such disruptions. Risk mitigation is the domain within
supply chain management which studies how firms can protect themselves from the effects of
supply chain disruptions.
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Expansion in supply chain globalization is resulting in an increase in geopolitical risks.
The rate of globalization has rapidly increased due to a multitude of variables consisting of cost-
efficient transportation due to containerization, reduced trade barriers resulting from the
formation of the WTO, and new digital markets which rose from the growth of the internet
(Bellamy et al., 2014). Digital markets consist of businesses harnessing technology as an
international platform to ship goods (Americas, 2022).
Bode and Wagner (2015) explore the concept of spatial complexity which is defined as
the geographic distance between firms and suppliers. Spatial complexity increases with a more
global supply base and can result in an increase in firm risk.
Similar to many supply chain disruptions ranging from industrial accidents to natural
disasters, trade wars which arise from geopolitical conflicts are considered low probability-high
consequence (LP-HC) disruptions (Kleindorfer & Saad, 2005; Knemeyer et al., 2009).
According to Ellis and Shockley (2010), risk mitigation efforts are determined by the extent to
which the risk can be controlled. Uncontrollability increases risk perceptions resulting in
outsized risk mitigation efforts.
Studies from both Narasimhan and Talluri (2009) and Hendricks and Singhal (2005)
advocate that firms must create supply chain management skills, expertise and infrastructure
which puts prominence on enhancing reliability and responsiveness of their firm. However, the
literature finds that such skills and experience are challenging to develop. Therefore, further
research is necessary. This creates an opportunity for future research to be conducted to develop
methods that can provide insights on how to create a reliable and responsive supply chain that is
agile enough to withstand adversity and the continuous changes that are brought forth by inside
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and outside factors. Additionally, risk mitigation literature demonstrates little consideration of
trade risks, further validating the need to evaluate this area of research.
A few researchers have noted the importance of trade risks in supply chains. Jacobs et al.
(2022) highlight that geoplitical events such as trade actions have the ability to present many
unique challenges which can result in an internal operations shutdown. Additionally, Allen
(2021) emphsizes the urgency to further analyze the effects of trade actions (i.e., sanctions),
questioning why the US policy makers prioritize security issues over domestic business interests.
Jacobs et al. (2022) analyze stock market reactions against a targeted firm on other firms
in the targeted firm’s supply chain eco-system. Their analysis examines the 2018 US government
ban on US firms from supplying to ZTE, a Chinese teleommunications manufacturer (Jacobs et
al., 2022). They highlighted that policymakers should be mindful of the implications imposed by
trade actions for both domestic and non-domestic firms. In addition, investors need to be aware
of the extent of the impacts as there are economic consequences associated with the trade actions
that are imposed on targeted firms. Jacobs et al. (2022) note that trade actions imposed by the
targeting country restrict transactions with the targeted firm and suppliers in the targeting
country, resulting in financial performance impacts to suppliers of targeted firms. Additionally,
firm reputation is in jeopardy of being damaged as a result of firm reliability and dependability
being affected by the trade action disruption (Allen, 2021).
Supply Chain Management: Sourcing Strategies
Sourcing is defined as a “strategic philosophy of selecting suppliers in a manner that
makes them an integral part of the buying firm for a particular component or part they are to
supply” (Zeng, 2000, p. 219). Sourcing is the initial step in production. Thus, materials sourced
have a direct impact on the final products’ quality and price (Zeng, 2000). Sourcing is a strategic
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decision which plays a vital role in a firm’s competitiveness as it builds and enhances a firms’
supplier-buyer alliance. There are various sourcing strategies: multiple sourcing, single sourcing,
single/dual hybrid or network sourcing, outsourcing, and global sourcing (Zeng, 2000). Sourcing
strategies as defined by Zeng (2000) are listed in Table 4.
Table 4
Sourcing Strategies
Strategy
Definition
Multiple sourcing
Multi-source strategy consisting of having various
business relationships with a number of suppliers for
the same materials, parts, or components.
Single sourcing
Reducing the total number of suppliers a firm does
business with and limiting it to one supplier for each
material, part, or component in an effort to establish
a long-term relationship.
Single/dual hybrid or network sourcing
Hybrid model, which firms benefit from both
multiple and single sourcing frameworks with an
intent to obtain subcontractors with skills and
specialized knowledge.
Outsourcing
Concept where firms are seeking goods or services
outside of their internal operations, either
domestically or abroad.
Global Outsourcing
A subset of outsourcing where the purchasing
strategy is firms seeking trade partnerships on a
global market.
Given that global outsourcing plays a pivotal role for firms in varied industries, the
strategy of global outsourcing is closely related to my research. In fact, 30–50% of outsourcing
organizations fail to realize their performance expectations (Disher et al., 2005; Handley &
Benton, 2013). As a result, relationships with service providers fail and problems are amplified.
According to Handley and Benton (2013), studies show that the causes for poor performance
include lack in understanding engagement complexity, inefficient communication and
coordination between internal and external stakeholders, non-defined performance measures, and
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inadequate contractual agreements. Understanding complexities with global outsourcing supports
this study in defining optimal means to mitigate risk related to trade actions. Organizations must
be flexible and agile to mitigate risk. Providing efficient and strategic sourcing strategies will
permit organizations to act swiftly when new trade actions are implemented.
Handley and Benton (2013) state that “task-specific complexity factors are task-related
characteristics that contribute to high levels of information load, diversity, or uncertainty” (p.
111). The literature states that all outsourcing relationships, regardless of whether they are purely
domestic or global in nature, can be influenced by task-specific complexity (Disher et al., 2005).
Task- and location-specific complexity factors impact both inter-firm control costs and inter-firm
coordination costs (Handley & Benton, 2013).
Handley and Benton (2013) theorize that control mechanisms address the behavior and
risk in interorganizational relationships, and coordination mechanisms target the inter-firm
integration difficulties unassociated with these behavioral concerns. Research has found that
complexity is considered a multi-dimensional construct, resulting in a lack of consensus on how
complexity should be defined and operationalized. Handley and Benton (2013) provide three
constructs used to reflect the location-specific complexity of the outsourcing service (i.e.,
geographic dispersion, geographic distance, and cultural distance) where each is hypothesized to
positively affect the level of control costs that the outsourcing organizations incur.
Handley and Benton (2013) demonstrate that the control mechanisms for the three
constructs used to reflect the location-specific complexity of the outsourcing service positively
affect the level of control costs that the outsourcing organizations incur. Pertaining to trade
actions, I hypothesize that by reducing the geographic distance, the geographic dispersion, and/or
the cultural distance of outsourcing, control and coordination costs can be mitigated.
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Overall, in analyzing the literature related to procurement strategy, it has been discovered
that trade risk is not a focus. Further, there is a lack of accord concerning how sourcing
complexity should be defined and operationalized. This is an opportunity for future research.
Description of Research Agenda
The research agenda for this topic consists of the following questions:
• How are supply chain managers perceiving and evaluating the disruptions due to
changing trade policies?
• What procurement strategies can supply chain managers use to protect against
trade actions?
• What actions are supply chain managers taking in response to changing trade
policies?
The aim of this study is to provide an analysis of how trade action volatility is affecting supply
chain organizations. The question of how trade actions influence supply chain organizations due
to the lack of appropriate procurement strategies in supply chain organizations to leverage
against tariff policy is not well-explored. The research design applied is the mixed methods
approach. The research is conducted using the two publishable papers format.
First, a qualitative analysis is conducted for paper one (Chapter 3) to gain insight on the
strategies and considerations from supply chain managers relative to trade actions to gain a better
understanding regarding their mindset relative to this topic. The first paper consists of a
qualitative analysis conducted through semi-structured interviews with supply chain managers at
US manufacturing firms. The findings help guide the second paper (Chapter 4), a quantitative
paper, to empirically test specific hypotheses using sample firms impacted by trade actions. This
paper consists of a quantitative approach, which analyzes Chinese firms which have been
22
identified in the IT hardware and semiconductor business sector, investigating the firms’ changes
in supply base relevant to concentration, geographic diversity, proportions in the targeting
country (i.e., US) and proportions in the targeted country (i.e., China).
Justification of Research Approach
Because the literature’s stage of development is nascent, I will not proposeanswers to
novel questions of how and why, but merely suggest new connections among phenomena
(Edmondson & Mcmanus, 2007). The exploratory research in paper one (Chapter 3) helps to
conceptually develop new constructs and explore boundary conditions qualitatively before
attempting to measure the study quantitatively in paper two (Chapter 4). Paper two aims to study
the reactions of organizations which have been identified as severely impacted by trade actions.
As exemplars, Chinese firms impacted by US trade actions are studied. The focus is within the
IT hardware and semiconductor business sector (e.g., ZTE & Hikvision) and assesses the extent
to which firms do (or do not) alter their supply strategies due to the heightened uncertainty
surrounding the US-China trade war.
This study aims to help supply chain organization achieve agility, flexibility, velocity,
visibility, and collaboration to mitigate risk associated to trade tariffs (Um & Han, 2020). Firms
have traditionally focused on their capabilities to strategically position themselves to prepare for
internal risks, such as those arising from sourcing, manufacturing and delivery that can lead to
major disruptions of material or information flows. This is primarily addressed by enhancing
adaptability and flexibility as a dynamic capability, ultimately offering supply chain resilience to
mitigate risk. This study aims to contribute to this work through analysis of how trade actions
influence supply chain organizations, and the procurement strategies that supply chain
organizations can employ to protect against trade policy changes (Um & Han, 2020).
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CHAPTER 3: EXPLORATION OF SUPPLY CHAIN MANAGERS
PRIORITIZING TRADE ACTIONS
Introduction
Supply chain management is recognized as an important discipline among academic
researchers and managers (Radwan Al-Shboul et al., 2017). “Supply chain management focuses
on how firms utilize their suppliers’ processes, technology and capability to enhance competitive
advantage” (Haddouch et al., 2022, p. 2). Given that suppliers are an integral link in any supply
chain, supply chain management scholars seek to understand supplier issues such as selection,
involvement, alliances, management, and linkages, as well as supply chain resilience (Radwan
Al-Shboul et al., 2017).
Supply chain performance can be greatly impacted by unexpected supply chain
disruptions. Supply chain disruptions can be defined as unexpected events which interrupt supply
chain operations at a high magnitude. Disruptions have the capability of cascading through
several supply chain levels, potentially having a significant impact on operations which can lead
to indefinitely suspending business (Aguila & ElMaraghy, 2019). Disruption risks can range
from natural catastrophes (i.e., earthquakes or hurricanes) to man-made threats (i.e., terrorist
attacks) or government sanctioned events such as trade actions (Hosseini et al., 2019). Supply
chain disruptions are highly unpredictable and can vary in scale and nature. These risks are
irregular and can be short-term or long-term events with negative effects (Hosseini et al., 2019).
Supply chain resilience (SCR) can be defined as firms having the means to mitigate or
prevent supply chain disruptions which cause firm interruptions (Hosseini et al., 2019). Supply
chain resilience arises when an environment is capable of withstanding, recovering, or adapting
24
from disruptions, ensuring performance and safeguarding firms from risks that threaten to disrupt
operational activities (Hosseini et al., 2019).
Trade actions are a specific type of supply chain disruption imposed by policy makers
resulting in buyers no longer being able to source from certain suppliers or countries and
suppliers no longer being able to supply certain buyers or countries (Heide & John, 1990). Trade
actions are sometimes unanticipated and the duration is often arbitrary resulting from sudden
government actions imposed on countries, specific business sectors, or selected firms. For
example, in 2018 the US government placed a ban on the use of ZTE technology and products.
This ban was abruptly reversed within four weeks of implementation (Jacobs et al., 2022).
Sudden government actions may arise from at least two factors: the entry of new government
administrations into office or the development of new trade policies to promote economic growth
and sustainability (Maya, 2022). However, research specific to supply chain managers
prioritizing trade actions has not been a focal point of research. There is a lack of studies in
supply chain management in relation to disruptions from trade actions.
One of the objectives of supply chain management is to safeguard firms from supply base
interruption (Ellis et al., 2010). Therefore, supply chain managers have the responsibility to
determine how they should react when they are faced with a disruption that will impact the flow
of goods. Understanding supply chain manager perceptions of risk is vital because actions
concerning risk are based on perceptions (Yates & Stone, 1992). Manager behavioral factors are
influenced by the magnitude of the risk, resulting in mangers’ internalizing how they should
mitigate supply disruption such as changing sourcing, stockpiling inventories, and reshoring
(Yates & Stone, 1992). These strategies are costly, and managers must assess the risk to support
decision-making which will provide the desired outcome (i.e., preventing losses and promoting
25
gains) as trade actions are often temporary (Ellis et al., 2010). Thus, this study explores if supply
chain managers should react to trade actions, as remedies are costly and time sensitive. If so,
how should companies react and what strategies can supply chain managers use to protect
against trade actions?
Given the lack of literature that considers management reaction (or inaction) to trade
actions, this study poses the following research questions:
• RQ1: How do supply chain managers prioritize trade actions relative to other
types of supply chain disruptions?
• RQ2: What factors or conditions lead companies to make (or not make) changes
to their supply base following a trade action?
• RQ3: What sourcing strategies are top-of-mind to mitigate trade actions?
Literature Review
Supply chain is a widely used term with no universal definition. What can be agreed upon
is that the competitive nature of firms is dependent on a network of factors beginning from
production, logistics, and distribution of final goods. This integrated network can be noted as a
supply of factor inputs and analysis, which can be considered supply chain management
activities (Friesz, 2011). Supply chain activities are vital to the transformation of raw materials to
finished goods which are transported to their final destination. Supply chains consist of a
multitude of entities connected by the flow of physical materials and information encompassing
the sourcing of goods and services required for production, manufacturing, logistics (i.e.,
transportation of goods), and distribution of materials to consumers, businesses, or other
customers who purchase goods.
26
Supply chain management encompassing risk mitigation is the domain within supply chain
management which is being researched. Supply chain disruptions are defined as undesirable
events which take place, ultimately damaging the supply chain and performance of firms
(Wagner & Bode, 2008). Supply chain disruptions range from weather conditions, terrorists’
attacks and geopolitical issues. These disruptions are random, resulting in disequilibrium within
firms’ supply chain. Thus, supply chain risk mitigation is employed to bring forth measures
which can support either anticipating or coping with disruptions (Friesz, 2011). Supply chain
disruptions are unanticipated and have the potential to cause harm to organizations operationally
and financially, resulting in costly recoveries. Thus, organizations must be readily equipped to
withstand such disruptions. Supply chain disruptions can include issues from any part of the
supply chain: supply (e.g., supplier bankruptcy, material shortages), manufacturing (e.g., internal
labor problems, product quality lapses), and/or logistics (e.g., lost or damaged shipments,
delayed deliveries).
Supply chain risks contribute to overall business risks, and it is vital to note that supply
chain disruptions can occur what is refered to as inside or outside. Outside disruptions can be
noted as trade tariffs and inside disruptions can be referred to as production issues or labor
supply challenges (Narasimhan & Talluri, 2009). Narasimhan and Talluri (2009) emphasize that
there is a need to implement an effective methodology for firms to be better equipped to identify,
anticipate, and assess supply chain risks as risks can severely impact firms financially.
Narasimhan and Talluri (2009) and Hendricks and Singhal (2005) proved that firms must
create supply chain management skills, expertise, and infrastructure which puts prominence on
enhancing reliability and responsiveness of their firm. However, the literature finds that such
skills and experience are challenging to develop. Therefore, further research is necessary. This
27
creates an opportunity for research to develop methods that can provide insight on how to create
a reliable and responsive supply chain that is agile enough to withstand adversity and the
continuous changes that are brought forth by inside and outside factors. Additionally, risk
mitigation literature demonstrates little consideration of trade risks, further validating the need to
evaluate this area of research.
Geopolitical Influence in Supply Chain
Geopolitical issues have increased supply chain vulnerability due to governments using
policy tools to address geopolitical matters. Economists define trade policy as rules and
regulations that concern trade relations between countries. These policy tools consist of
implementing regulations, trade tariffs, sanctions, and bans to gain economic favor as the
government deems suitable.
According to economics literature, governments have a role to play in promoting new
industries and supporting the growth of key industries providing recognition that economies of
scale are a key factor in influencing the development of trade. For example, a developing
economy may need tariff protection and domestic subsidies to encourage the creation of capital-
intensive industries. If sufficiently protected by trade policies, developing companies can attain
economies of scale by increasing production and lowering costs (Neary, 2009). However, the
deployment of these policy tools can have an adverse effect on supply chains as they can not
only harm foreign firms but also domestic firms (Jacobs et al., 2022). For example, tariffs are
used to restrict (or encourage) imports, increasing (or decreasing) the cost of goods and services
purchased from another country, and making them less (or more) attractive to domestic
consumers. Unexpected changes in trade actions are a disruption in supply chain management as
organizations who source their products from overseas are impacted by the increased prices to
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make goods. Often, the increased producer prices are passed on to individual consumers who
must pay more. Tariffs are typically intended to benefit the importing countries, as the country
implements the policies which must be adhered to. These policies set the organizational tone for
corporations as they must comply with regulations set forth by the government (Elzinga, 1987).
Tariffs and trade policies impact firms primarily through their supply chain organizations.
Trade actions represent a supply chain risk disruption due to the impact they impose if a firm is
required to switch suppliers. Changing suppliers has the potential to reduce inventory levels to a
dangerous point resulting in lost customers or other changes imposed in a firm’s downstream
demand. Moreover, supplier switching costs can be substantial. These costs can include
canceling existing contracts, finding new suppliers, negotiating new contracts, and redefining
logistics networks to encompass any new suppliers. Switching costs could lead to financial
consequences, particularly in situations like order cancellations, which might result in liquidity
difficulties for companies, hindering their ability to fulfill financial commitments to suppliers.
This lack of financial support could extend the recovery time for supply chains since suppliers
are limited in their ability to expand production capacities (Seuring et al., 2022). Thus, firms
must remain proactive in modifying shipping patterns to avoid risks associated with trade tariffs.
The costs imposed on firms due to the supply chain disruptions resulting from government
policy implications can extend beyond monetary concern, even to firm viability as firms might
jeopardize their competitive advantage amongst their global competitors, resulting in their supply
chain operations no longer being viable (Sodhi et al., 2012). Expansion in supply chain
globalization is resulting in an increase in geopolitical risks. Globalization can be defined as the
movement of goods, people, and services across the world which offers firms the opportunity to
expand their customer base in new markets, gaining greater exposure to competition and risk
29
(Vidrova, 2020). Globalization increase in supply chain activities creates a more complex
environment for firms due to products having to cross international borders, creating a hindrance
when world markets are unable to be accessed due to trade actions (Vidrova, 2020).
A few researchers have noted the importance to research trade risks in supply chain.
Jacobs et al. (2022) highlight that geoplitical events such as trade actions have the ability to
present many unique challenges which can result in an internal operations shutdown.
Additionally, Allen (2021) emphasizes the urgency to further analyze the effects of trade actions
(i.e., sanctions), questioning why the US policy makers prioritize security issues over domestic
business interests (Allen, 2021).
According to Jacobs et al. (2022), trade actions against a targeted firm impacts the stock
market significantly, resulting in other firms associated with the targeted firm’s supply chain
eco-system being affected. For example, in 2018 the US government placed a ban on ZTE, a
Chinese telecommunications manufacturer. The ban impacted both ZTE and US firms as US
firms were no longer able to supply to ZTE. Jacobs et al. (2002) highlighted that policymakers
should be mindful of the implications imposed by trade actions for both domestic and non-
domestic firms, in addition to investors being aware of the extent of the impacts as there are
economic consequences associated with the trade actions that are imposed on targeted firms.
Jacobs et al. (2022) note that trade actions imposed by the targeting country will restrict
transactions with the targeted firm and suppliers in the targeting country, resulting in financial
performance of suppliers of targeted firms to be impacted. Additionally, firm reputation is in
jeopardy of being damaged as a result of firm reliability and dependability being affected by the
trade action disruption (Allen, 2021).
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Supply Chain Sourcing Strategies
Firms with appropriate sourcing strategies can mitigate against disruptions resulting from
trade actions which disrupt the flow of goods from suppliers. Supply chain managers have the
capability to influence decision-making processes to control variables that affect supplier
relationships (Ellis et al., 2010). Global outsourcing is a subset of sourcing that plays a pivotal
role in all industries as organizations strive to achieve optimal means to obtain goods. However,
according to Disher et al. (2005), 30-50% of organizations outsourcing failed performance
expectations. As a result, relationships with suppliers fail and problems are sometimes amplified.
According to Handley and Benton (2013), studies have shown that the causes for organization
poor performance include lack in understanding engagement complexity, inefficient
communication and coordination between internal and external stakeholders, non-defined
performance measures, and inadequate contractual agreements.
Understanding the complexities with global outsourcing supports this study in defining
optimal means to mitigate risk related to tariffs. Organizations must be flexible and agile to
mitigate risk. Providing efficient and strategic sourcing strategies for organizations will permit
them to act swiftly when new government regulations are implemented.
Handley and Benton (2013) provide analysis that task related characteristics (i.e., high
levels of information load, diversity, uncertainty) are affected by task-specific complexity
factors. The literature has stated that outsourcing relationships, regardless of if they are purely
domestic or global in nature, can be influenced by task-specific complexity (Disher et al., 2005).
Handley and Benton (2013) theorize that control mechanisms address the behavior and
risk in interorganizational relationships, and coordination mechanisms target the inter-firm
integration difficulties unassociated with these behavioral concerns. Handley and Benton (2013)
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provide three constructs used to reflect the location-specific complexity of the outsourcing
service (i.e., geographic dispersion, geographic distance, and cultural distance) where each is
hypothesized to positively affect the level of control costs that the outsourcing organizations
incur. Research has found that complexity is considered a multi-dimensional construct, resulting
in a lack of consensus on how complexity should be defined and operationalized.
Supply chain managers are largely focused on reducing supply chain disruptions due to
the negative cost implications brought forth for the buying firm. Therefore, supply chain
managers have the capability to decrease complexity by actions such as reducing their number of
suppliers, increasing sourcing with local suppliers, and/or employing third party logistics
providers to manage sourcing. These actions can help to ensure a smooth flow of materials from
their supply base (Ellis et al., 2010).
In analyzing supply chain management literature related to procurement strategy, it has
been discovered that trade risks are not a focus. Further, there is a lack of accord concerning how
sourcing complexity should be defined and operationalized - an opportunity for this research.
Supplier Management Practices
Supplier management practices are defined as a set of activities incorporated by an
organization to promote an effective and efficient supply chain management infrastructure
(Haddouch et al., 2022). These practices range from behavioral integration to strategic
partnerships with suppliers. Behavioral integration is defined as mutual information sharing of
risks and rewards between partners (Min & Mentzer, 2004). The intent of this relationship is to
serve the customer while maintaining a long-term relationship with all parties engaged, also
referred to as cooperation or collaboration. Strategically partnering with suppliers is the process
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of developing a close relationship with suppliers and ensuring full transparency of data is shared
among counterparts for the collective success of all involved (Croom et al., 2000).
Understanding supply chain management practices grants insight to factors that influence
firms’ decision making related to procurement strategies. For example, the qualitative aspect of
sharing information among partners yields benefits among organizations as this demonstrates a
collaborative relationship through data flow, granting one another full transparency of current
and viable information (Croom et al., 2000).
Prioritization is key in supply chain management as firms attempt to streamline supply
chain processes to promote a flowing and efficient supply chain eco-system. However, due to the
lack of control, unpredictability, and uncertain durations, supply chain managers may lack focus
on paying sufficient attention to trade actions, placing their attention elsewhere (Heide & John,
1990). Supply chain managers are often inundated with the integration of many activities which
limits their capacity to address all matters that have the potential to impact operations. Thus,
supply chain managers must know and understand what tasks take precedence and coordinate
efficiently. Consequently, supply chain managers might disregard trade actions or minimize the
level of attention provided to these risks based on the notion that trade actions may end abruptly
and duration is minimal (Yates & Stone, 1992).
The objective of this study is to understand the supply chain manager mindset relative to
trade actions. Understanding the mindset of supply chain managers is important as it influences
the probability that managers will prioritize trade actions. Supply chain managers assess
situations based on their perceptions, conceptualizing and translating the disruption through a
risk decision-making lens (Ellis et al., 2010). Supply chain managers internalize situations to
33
better understand perceived outcomes. Hence, if a trade action is not perceived as a core risk,
managers will shift their focus on other tasks and prioritize accordingly (Yates & Stone, 1992).
Study Design
The aim of this qualitative study is to understand supply chain manager perceptions
regarding disruptions due to changing trade policies and explore if supply chain managers react
to trade actions. If so, how should companies react and what strategies can supply chain
managers use to protect against trade actions (i.e., sourcing strategies)? To empirically analyze
supply chain manager perceptions and investigate international sourcing strategies, semi-
structured interviews were conducted with a targeted sample size of 15-20 participants in supply
chain management organizations in mid- and senior-level business roles who are engaged in
procuring goods for the organizations.
The study adopts an inductive phenomenology approach, “addressing meaning, structure,
and essence of the lived experience” (Towers et al., 2020, p. 444). Welman and Kruger (1999)
state that the phenomenologist grasps both the social and psychological phenomena from the
perceptions of individuals involved in the situations being analyzed. Thus, the researcher is
responsible to investigate the experiences lived through the lens of the individuals involved.
Phenomenological philosophy suggests that the world we live in is created through human
interpretation which requires the subject to be cognizant of language, symbols, culture, and
understanding that the subject is contributing to the larger knowledge and experience (Petrovici,
2013). This study captures the views and experiences of the participants and incorporate them as
fact with the validity that their perceptions have been lived experiences. Therefore, the
participants in this study must be engaged in supply chain management practices that allow them
to provide their real-life experiences in providing insight to procurement strategies. Their
34
perspectives provide context in understanding how firms involved in supply chain activities
procure goods and manage through disruptions due to changing trade policies.
Through the inductive phenomenology approach, interviews are conducted and an
interview protocol is used. The interview protocol serves as an instrument of data collection,
with the intent to ask questions concerning sourcing strategies to focus on risk mitigating
schemes in supply chain management organizations to protect themselves against trade actions.
Questions in the interview protocol (Appendix B) focus on the target participants from mid- and
senior-level business leaders who work for manufacturing firms and are engaged in procuring
goods for the organizations about their current practices concerning sourcing strategies. Careful
consideration is given to the interview questions and design to ensure the key elements
concerning sourcing strategies in relation to risk mitigation are asked.
Furthermore, the questions within the interview protocol are intended to discover how
firms have developed the capability to strategically position themselves to prepare for external
risk (i.e., trade actions) which impact firms internally, resulting in internal disruptions. Internal
disruptions in material flow affect sourcing, manufacturing and delivery of goods, negatively
impacting firms financially and operationally (Ellis et al., 2010). According to Um and Han
(2020), internal risks can be addressed by enhancing adaptability and flexibility as a dynamic
capability, ultimately offering supply chain resilience. This study explores how trade actions
influence supply chain organizations and the strategies, or lack thereof, to mitigate the
disruptions caused by trade actions. This area of research is situated in the nascent stage of
development. Given that the literature’s stage of development is nascent, exploratory research
helps to conceptually develop the new constructs and explore boundary conditions qualitatively
before attempting to measure them quantitatively.
35
Data Collection Methods
The data analysis method applied to this study is the Gioia method, an inductive approach
in qualitative data analysis (Gioia et al., 2012). The groundwork for this study lies in conducting
semi-structured interviews to obtain retrospective and real-time accounts by the individuals who
experienced the phenomenon (Gioia et al., 2012).
The data analysis from the interviews consist of analyzing the emerging terms, codes, and
categories from the interview dialogues, also referred to open coding. Open coding permits the
data to be analyzed in parts, which lend themselves to codes which can be labeled (Gioia et al.,
2012). Therefore, the process consists of defining what phrases in the dialogues mean and
relating them to concepts (codes) which can be evaluated; this process can be referred to as the
1st order of analysis. The intent of this method is to find similarities and differences in categories
that will eventually be more manageable to analyze the data. As the research progresses, a 2nd
order analysis is conducted, where theoretical level of themes and dimensions are examined.
After a workable theme(s) and concept(s) are identified, aggregate dimensions are applied to
build a data structure (Gioia et al., 2012). The data structure permits data to serve as a visual aid
in demonstrating the progression from raw data to themes. Figure 2 serves as an example of the
data structure that is developed.
Figure 2
Data Structure Example
1st Order Concept(s) 2nd Order Themes Aggregate Dimensions
Customers don’t receive adequate
service
Supplier
discrepancies
Procurement
Strategy Triggers
36
The target sample size for the interviews was 15-20 interviews. Supply chain literature
was used to support and identify themes within the analysis. Purposive sampling strategies were
applied to select participants for interviews. Purposive sampling is designed to enhance
understandings of selected individuals or groups’ experience(s) (Devers & Frankel, 2000), for
developing the theory that trade tariffs influence supply chain organizations due to the lack of
efficient procurement strategies in supply chain organizations to leverage against tariff policy.
This research intended to accomplish the goal of selecting information-rich interviews that
support this study and provide insights into the research questions.
The target participants are mid- and senior-level business leaders who work for
manufacturing firms and are engaged in procuring goods for the organizations. The intent is to
obtain information rich data on procurement strategies and analyze the supply chain procurement
processes employed within firms. Participants were recruited through social media platforms
such as LinkedIn and Supply Chain Management networks. The interviews involved individual,
semi-structured virtual sessions conducted face-to-face, using open-ended questions. Initial
interviews typically last between 45 minutes to one hour.
Interviewee demographics are reported in Table 5. The interview protocol is provided in
Appendix B for reference with its associated research question(s) and interview content
question(s) relation matrix noted in Appendix C.
37
Table 5
Interviewee Demographics
38
Data Analysis Coding Methodology
Interviews are unique; they have the ability to reveal insights and deliver first-hand
information from participant real-world experience that no other method can provide. After each
interview is conducted, the data is reviewed. The data review process consists of listening and
watching the recording, in addition to reading the interview transcript.
Interviews were conducted face-to-face virtually via Zoom, eliminating in-person long-
distance barriers, permitting the interview to be conducted from anywhere. This increased
flexibility for myself and participants. Interviews were transcribed via meeting platforms such as
Zoom and Otter.ai. Participants were requested to review the transcription for accuracy and
clarification. All transcribed data was considered finalized after the participant confirmed they
agreed to the content in the transcription.
In summary, data analysis involved initial data coding to uphold the integrity of primary
codes by constructing an extensive list, arranging primary codes into secondary themes, and
transitioning these themes into theoretical dimensions. These terms, themes, and dimensions
collectively contribute to the formation of a data structure.
Ethical Considerations
Ethical considerations included seeking approval for this study from the Graduate and
Professional Schools Institutional Review Board (IRB) at Pepperdine University. After IRB
approval, all participants selected for the interview received an explanation detailing the study
objective. Interviews were conducted providing an in-depth study of a system, based on a diverse
array of data collection materials (Stake, 1995). Questions were asked to gain an understanding
of the interviewee’s context. Interviews were conducted with respect and integrity, and strived to
be unbiased. It is vital to note that biases have the ability to influence research outcomes, and one
39
must ensure that their personal opinions as a researcher do not affect the research itself. Bias
management can be a challenge for qualitative researchers who are conducting interviews.
One method to mitigate against bias is to conduct a pilot study, which can also be
referred to as test run. A test run with two participants was conducted, and the data were
analyzed to identify any potential scenarios where bias may occur. Following the guidelines
outlined by Chenail (2011), a well-conducted pilot study involves:
• Administering the questions in the same way as in the main study,
• Asking the subjects for feedback to identify ambiguities and difficult questions,
• Recording the time taken to complete the interview, decide whether it is
reasonable, and better record participants’ time commitments in the IRB protocol,
• Discarding all unnecessary, difficult, or ambiguous questions,
• Assessing whether each question gives an adequate range of responses,
• Establishing that replies can be interpreted in terms of the information that is
required,
• Checking that all questions are answered,
• Re-word or re-scaling any questions that are not answered as expected, and
• Shortening, revising, and re-piloting the Study (pp. 257 – 258).
These steps were crucial in ensuring the validity and reliability of the research findings.
Additionally, the pilot study yielded successful outcomes, with no necessary adjustments made
to the protocol or other aspects as a result of the pilot study.
Results
The emerging aggregate dimensions or themes clarified critical facets of sourcing.
Several aggregate dimensions or themes emerged from the responses of supply chain managers.
40
These dimensions included Sourcing Strategy and Supplier Management, Risk Management and
Disruption Mitigation, Ethics and Compliance, Global Sourcing and Market Awareness, and
Supply Chain Performance, and Efficiency. Figure 3 provides the analysis of sourcing strategies
and supplier management themes and concepts.
41
Figure 3
Hierarchical Representation of Sourcing Strategies and Supplier Management Themes and Concepts
42
Figure 3 illustrates the process of transitioning from raw data to themes in the context of
sourcing strategies and supplier management. The leftmost column represents the raw data,
comprising participant responses, which are then coded into first-order categories (concepts).
These codes are further organized into second-order themes (sub-themes), as shown in the
second column. Finally, the aggregate dimensions (themes) are derived by aggregating related
sub-themes. This hierarchical structure demonstrates the evolution from individual responses to
overarching themes, providing a visual representation of the data analysis process.
As reported in Table 6, the study revealed insights into diverse dimensions of sourcing
strategies and supplier management practices concerning the mitigation of risks associated with
trade actions in supply chain management. In the theme of Sourcing Strategy and Supplier
Management, the respondents emphasized the significance of adapting strategies in response to
tariff influences, market shifts, and trade issues.. Collaborative partnerships with suppliers were
underscored as instrumental in managing supply chain disruptions. In the Risk Management and
Disruption Mitigation theme, participants emphasized strategies for mitigating supply chain risks
by evaluating supplier quality, cost, delivery time, and reliability. Respondents highlighted the
importance of flexibility in reevaluating suppliers, implementing contingency plans, and making
contractual adjustments when necessary. The Ethics and Compliance theme highlighted the
crucial role of upholding ethical sourcing practices, with clear expectations outlined in ethical
sourcing agreements. The Global Sourcing and Market Awareness theme revealed considerations
in global supply chain decisions, emphasizing the impact of world trade on supplier selection and
the need to stay informed about international market trends. Lastly, the Supply Chain
Performance and Efficiency theme underscored the importance of forecasting demand, efficient
inventory management, and regular monitoring of supplier performance through audits and
43
technology. The findings contribute nuanced perspectives on how supply chain leaders,
represented by the study's 15 respondents, navigate the complexities of trade actions, offering
practical insights for organizations aiming to enhance their procurement strategies amidst
evolving trade dynamics.
Table 6
Representation of Themes and Responses in Sourcing Strategies and Supplier Management
In the area of Sourcing Strategy and Supplier Management, participants emphasized the
imperative to adapt strategies based on tariff influences, market shifts, and trade issues.
Collaborative partnerships with suppliers were underscored as instrumental in managing supply
chain disruptions. One participant elucidated, "We strive to have collaborative partnerships with
our suppliers; we believe this approach supports us in managing supply chain disruptions."
44
Another participant highlighted the importance of transparent communication and regular
planning to navigate dynamic market conditions.
Risk Management and Disruption Mitigation emerged as a central theme. Participants
detailed strategies to mitigate supply chain risks. The assessment of supplier quality, cost,
delivery time, and reliability were a key focus. Participants acknowledged the challenges posed
by unforeseen country requirements and compliance issues. One participant noted, "Unexpected
imposed country requirements, and other compliance issues affect the ability of the supplier to
deliver products and services to our company." Contingency plans and contract adjustments were
recognized as essential components of navigating disruptions effectively.
Ethics and Compliance played a crucial role in participants' sourcing strategies, with an
emphasis on upholding ethical sourcing practices. Clear expectations for suppliers were set
through ethical sourcing agreements, reflecting a commitment to human rights, fair labor, and
environmental stewardship. A participant emphasized this commitment: "As a responsible supply
chain organization, we uphold ethical sourcing practices as a core value."
Global Sourcing and Market Awareness highlighted the global considerations in sourcing
decisions. Participants acknowledged the impact of world trade on supplier selection,
emphasizing the need to monitor global trade patterns and stay informed about international
market trends. A participant stated, "World trade definitely impacts our decision when selecting
international suppliers. We closely monitor global trade patterns."
Supply Chain Performance and Efficiency underscored the importance of forecasting
demand, managing inventory efficiently, and monitoring supplier performance through audits
and technology. Regular assessments of supplier reliability and adherence to delivery schedules
were key components of ensuring ongoing compliance and efficiency in supply chain operations.
45
One participant elaborated, "We assess the performance and reliability of our current suppliers in
terms of meeting delivery schedules."
Results Conclusion and Discussion
In answer to RQ1 (i.e., “How do supply chain managers prioritize trade actions relative to
other types of supply chain disruptions?”), supply chain managers prioritized trade actions by
assessing their potential impact on the business. In the dataset, all respondents considered factors
such as the degree of impact and the severity of disruption when evaluating trade actions relative
to other disruptions. One respondent explicitly mentioned prioritizing trade actions based on
their potential consequences on the supply chain and overall business operations, as highlighted
in the theme of changing sourcing strategies based on tariff influences, market shifts, and trade
issues. The findings underscore that while trade actions are crucial, they may not always be the
top priority, as disruptions can vary in their degree of impact.
Concerning RQ2 (i.e., “What factors or conditions lead companies to make/not make
changes to their supply base following a trade action?”), the analysis revealed several key
considerations. Tariff influences prompted adjustments in sourcing strategies, including seeking
alternative suppliers or modifying contracts to mitigate the impact. Market dynamics, such as
shifts in availability and cost, drove changes in the supply base, leading companies to explore
new suppliers or shift to different markets. Country restrictions resulting from trade actions
necessitate a reevaluation of the supply base, with companies seeking alternative sources to
maintain a smooth supply chain. Quality and delivery issues, as well as ethical considerations,
also played crucial roles in driving changes to the supply base. The conclusion highlights the
multifaceted nature of these factors, including financial implications, market dynamics, trade
46
restrictions, quality, and reliability concerns. This emphasizes the need for a holistic approach by
supply chain managers to navigate trade disruptions effectively.
In terms of sourcing strategies concerning RQ3 (i.e., What sourcing strategies are top of
mind to mitigate trade actions?”), supply chain managers employ a diverse set of approaches.
Adjusting sourcing strategies in response to tariff influences and market shifts is a common
strategy, with an emphasis on seeking alternative suppliers in regions with more favorable trade
conditions. Transparent communication and collaboration with suppliers are highlighted as
essential, emphasizing the development of contingency plans to manage disruptions resulting
from trade actions. Diversifying the supply base is another key strategy, reducing reliance on a
single market and mitigating risks associated with trade actions. Accurate demand forecasting
and efficient inventory management are crucial to ensuring companies have the right inventory
levels and can respond promptly to changes in trade conditions. Ethical sourcing practices,
monitoring and audits, and leveraging technology and automation also emerged as important
strategies. The conclusion emphasizes the need for tailored approaches, considering the specific
trade action, industry, and overall risk tolerance and strategic objectives of the company. Supply
chain managers are urged to carefully evaluate the impact of trade actions and adapt their
sourcing strategies accordingly.
Theoretical Contributions
The theoretical contributions of this study are rooted in the exploration of sourcing
strategies and supplier management practices as critical elements in mitigating the risks
associated with trade actions within the realm of supply chain management. Engaging mid- and
senior-level business leaders across diverse industries yielded empirical insights that not only
enhance theoretical understanding but also inform strategic decision-making.
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The results of the study shed light on several critical aspects concerning supply chain
management in the context of trade actions. Firstly, the findings indicate that supply chain
managers prioritize trade actions based on their potential impact, considering factors such as the
degree of disruption and severity. This aligns with existing literature highlighting the
significance of assessing and managing risks posed by trade disruptions (McKinsey, 2020).
Additionally, the analysis reveals that tariff influences, market dynamics, country restrictions,
and quality concerns prompt adjustments to the supply base following trade actions. These
findings are consistent with the literature, emphasizing the need for firms to adapt their sourcing
strategies in response to changing trade conditions (Elzinga, 1987; Santos-Paulino, 2017).
Furthermore, the study underscores the diverse range of sourcing strategies employed by supply
chain managers to mitigate trade actions, including diversifying the supply base, transparent
communication with suppliers, and leveraging technology. These strategies resonate with
existing literature advocating for a holistic approach to managing supply chain disruptions and
enhancing resilience (Hendricks & Singhal, 2005; Wagner & Bode, 2008).
In terms of the literature review, the study findings largely align with foundational
theories and empirical evidence regarding trade disruptions and supply chain management. The
identification of factors influencing changes in the supply base following trade actions
corroborates existing literature emphasizing the multifaceted nature of supply chain risks and the
need for adaptive strategies (Friesz, 2011; Jacobs et al., 2022). However, the results also
highlight certain nuances and complexities not extensively addressed in the literature, such as the
role of quality and ethical considerations in supplier selection. This suggests potential areas for
further theoretical exploration to enhance our understanding of supply chain responses to trade
actions. Overall, the study contributes empirical evidence that supports existing theories while
48
also indicating avenues for future research to delve deeper into specific aspects of supply chain
management in the context of trade disruptions.
Considering the theoretical framework, the study provides empirical evidence of how
organizations adapt sourcing strategies and supplier management practices in response to trade
actions. The study provides tangible examples of how organizations implement sourcing
strategies and supplier management practices in response to trade actions, bridging the gap
between theoretical frameworks and practical application. By prioritizing contractual
considerations, fostering collaborative partnerships with suppliers, and mitigating supply chain
risks through evaluation and contingency planning, companies demonstrate the
operationalization of theoretical concepts in real-world scenarios. These examples illustrate how
organizations actively adapt their procurement strategies to navigate the complexities of trade
disruptions, enhancing the understanding of supply chain management practices amidst evolving
trade dynamics.
The study validates managerial concerns regarding trade actions, countering the notion
that they are not top-of-mind for many managers. By demonstrating that managers actively
respond to trade actions and prioritize corresponding concerns in their procurement strategies,
the study provides empirical support for theoretical expectations (Flynn et al., 2010; Wagner &
Bode, 2008).
The study offers insights into how organizations strategically adapt their sourcing
strategies amidst trade disruptions, emphasizing the importance of flexibility and agility. By
supporting the notion that companies change suppliers and adjust their domestic vs. international
supplier mix in response to trade actions, the study informs Chapter 4's exploration of changes in
the supply base. Furthermore, the study highlights the crucial role of ethical considerations and
49
compliance in supplier management practices, aligning with existing literature on the importance
of ethics in global supply chain management (Kim & Chae, 2021; Odero & Otieno, 2023). This
underscores the need for clear expectations for suppliers and ethical sourcing practices,
providing practical guidance for organizations aiming to uphold ethical standards amidst trade
disruptions.
Lastly, this study underscores the significance of global awareness in supply chain
management, providing evidence that collaboration reduces the likelihood of changing suppliers,
supporting Chapter 4’s investigation into the advantages or disadvantages created by changes in
the supply base.
In summary, this study enriches understanding by offering insights into how
organizations navigate trade actions through strategic sourcing strategies and supplier
management practices, thereby providing practical guidance for enhancing procurement
strategies amidst evolving trade dynamics. The study extends the existing literature on supply
chain management, risk mitigation, and geopolitical influences, offering valuable insights into
how organizations can effectively navigate the challenges posed by trade disruptions.
Friesz (2011) underscores the competitive nature of firms and the critical role of supply
chain activities, highlighting the complexity of processes from sourcing to distribution. While
my study confirms the multifaceted nature of supply chain disruptions, it also reveals additional
nuances in how organizations prioritize and respond to these challenges, offering complementary
insights to Friesz (2011).
Wagner and Bode (2008) emphasize risk mitigation within supply chain management and
the need for organizations to be well-prepared to withstand unforeseen challenges. My study
aligns with their recognition of a spectrum of disruptions, ranging from weather conditions to
50
geopolitical issues. Specifically, my findings illustrate how supply chain managers prioritize
trade actions relative to other disruptions and the factors driving changes in the supply base
following trade actions, enriching Wagner and Bode's (2008) framework.
Jacobs et al. (2022) delve into geopolitical influences (i.e., trade actions) and the policy
tools employed by governments. My study aligns with their perspectives on the significant role
of trade policies in shaping global supply chains. However, my findings offer additional insights
into how organizations navigate the complexities of trade actions, providing empirical evidence
to support and extend their theoretical framework. Specifically, my results elucidate the factors
driving changes in sourcing strategies and supply chain efficiency following trade actions,
contributing to a deeper understanding of the strategic responses adopted by organizations.
Vidrova (2020) and Allen (2021) shed light on the challenges posed by trade actions
across international borders. My study corroborates their findings and extends them by delving
deeper into the specific strategies employed by organizations to mitigate the impact of trade
disruptions. The results offer practical implications for strategic decision-making in global
supply chain management, providing actionable insights for organizations seeking to enhance
their resilience in the face of evolving market conditions.
Moreover, the theoretical foundations provided by Disher et al. (2005) and Handley and
Benton (2013) enrich my study's exploration of sourcing strategies within supply chain
management. The findings of the current study align with their insights on the importance of
flexibility and agility in adapting sourcing strategies. However, my results also reveal unique
considerations and responses related to trade disruptions, offering a nuanced perspective on
strategic decision-making in the face of evolving market conditions.
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Implications for Practitioners & Businesses
The findings offer unique insights into the practical implementation of sourcing strategies
and supplier management practices amidst trade actions. What sets this research apart is its focus
on providing tangible examples of how organizations adapt their procurement strategies in
response to trade disruptions, offering a bridge between theoretical concepts and real-world
applications. Additionally, the emphasis on collaborative partnerships with suppliers and the
prioritization of ethical sourcing practices distinguish this study, highlighting the importance of
fostering strong relationships and upholding ethical standards within supply chains. This
uniqueness adds significant value to practitioners and businesses, providing them with actionable
guidance to navigate the complexities of trade actions effectively while maintaining ethical
integrity and resilience in their supply chain operations.
Practitioners and businesses operating in a globalized environment must recognize the
dynamic nature of the trade landscape and strategically adapt their sourcing strategies in
response to trade actions. This involves continuous monitoring of geopolitical factors, policy
changes, and market shifts to optimize supply chain efficiency. Emphasizing collaborative
partnerships with suppliers is crucial, requiring transparent communication and collaborative
planning to effectively navigate disruptions. Diversifying the supplier base and developing
contingency plans for unforeseen country requirements, compliance issues, and geopolitical
events enhances resilience. Prioritizing ethical sourcing practices aligns with corporate
responsibility, contributing to a positive brand image. Global market awareness, closely
monitoring trade patterns, and staying informed about international market trends empower
businesses to make informed decisions in supplier selection and navigate the complexities of the
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global supply chain. Focusing on supply chain efficiency, demand forecasting, and regular
assessments of supplier performance contribute to supply chain performance and efficiency.
Practitioners in supply chain management should prioritize risk mitigation and disruption
management strategies, including a thorough assessment of supplier quality, cost, delivery time,
and reliability. Adopting adaptive sourcing strategies in response to tariff influences, market
shifts, and trade issues requires a proactive approach, adjusting contracts, seeking alternative
suppliers, and ensuring flexibility. Prioritizing strategic supplier management practices, such as
behavioral integration and strategic partnerships, is instrumental in navigating the complexities
of the supply chain. A holistic approach to complexity, addressing task-related complexity
factors, geographic dispersion, and cultural differences, is essential for minimizing disruptions.
Leveraging technology and automation enhances efficiency in supply chain operations,
streamlining processes, improving data flow, and facilitating transparent communication.
Continuous learning and adaptation are crucial for practitioners to stay informed about market
trends, policy changes, and emerging geopolitical risks, enabling them to make informed
decisions in the dynamic global supply chain environment.
Limitations
It is crucial to acknowledge the limitations of the study, such as the small sample size and
the absence of representation from the High-Tech industry, which may constrain the
generalizability of findings to all industries. Future research endeavors with a more diverse and
industry-specific sample are warranted to enhance the robustness and applicability of the study's
conclusions. Investigating how different organizational roles perceive and prioritize trade actions
could reveal valuable insights, shedding light on potential misalignments that might impact
decision-making dynamics.
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Although the study touches on various industries, including agriculture, pharmaceuticals,
healthcare, and logistics, a more in-depth examination is necessary to uncover significant
differences in how trade actions are perceived and managed across these sectors. Each industry
likely faces unique challenges and possesses distinct priorities in terms of sourcing strategies and
disruption mitigation. A thorough exploration of industry-specific practices and challenges
would contribute to a holistic understanding of how trade actions impact different sectors.
The study demonstrates there is a need for a more comprehensive exploration to uncover
potential variations in their perspectives and approaches toward trade actions. Understanding
whether specific patterns or differences exist in decision-making based on the hierarchical level
within an organization is essential. Examining the roles of executives, mid-level managers, and
frontline supervisors could unveil insights into information flow, decision-making processes, and
strategy implementation at various organizational levels.
In summary, addressing these research limitations would provide a more nuanced and
comprehensive understanding of how different stakeholders, industry sectors, and management
levels perceive and respond to trade actions in the context of supply chain management. This
deeper insight can guide future research endeavors and contribute to the development of targeted
strategies for effectively navigating trade disruptions in diverse organizational settings.
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CHAPTER 4: DATA ANALYSIS OF FIRMS TARGETED BY TRADE ACTIONS
Introduction
Global trade is vital to our economy, consisting of importing and exporting goods and
services globally amongst various countries; however, trade actions may inhibit this importation
and exportation. Ultimately, this can reduce economic growth and living standards, given
consumers have less access to a variety of commodities that are not readily available within their
country, including agriculture, electronics, and clothing required to sustain people's livelihood.
Through global trade, countries are unified, developing an alliance among markets and people,
increasing employment, and contributing to currency exchange. Examples of recent trade actions
include sanctions imposed on Russia by the US for a prohibition on the importation of Russian
Federation-origin fish, seafood, and preparations into the US (Treasury, 2022), government
restrictions imposed on Japanese chemical exports required for semiconductor manufacturing in
South Korea (Martin, 2019), and telecommunication equipment bans imposed by the US on
various Chinese technology companies including Huawei, ZTE, Hikvision, and Dahua,
prohibiting the importation of equipment and services from these organizations (Griffin, 2021).
Trade actions are increasing as policy makers use them to enhance competitive standing of
domestic industries (York, 2018).
Given that supply chains are comprised of buyers, suppliers, and intermediaries that often
span the globe, supply chain managers must be prepared to withstand unplanned events imposed
by governments which pose a threat to the free flow of goods in an organizations’ supply chain
(Hughes et al., 1997). Supply chain risks contribute to overall business risks, and it is important
to note that supply chain disruptions can occur inside or outside the focal firm. One example of
outside disruptions are trade tariffs; others include natural disasters, wars, and pandemics.
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Examples of inside disruptions include production issues or labor challenges (Narasimhan &
Talluri, 2009). Narasimhan and Talluri (2009) emphasize that there is a need to implement an
effective methodology for firms to be better equipped to identify, anticipate, and assess supply
chain risks as they can severely impact firms financially.
Despite the potential for trade actions to be disruptive, managers may choose to overlook
them for several reasons. First, they might perceive trade actions as temporary or expect that
their effects will be mitigated over time. Additionally, managers may prioritize immediate
operational concerns or ongoing strategic initiatives over responding to trade actions.
Furthermore, some managers may lack awareness of the full extent of the potential impact of
trade actions on their supply chains, leading them to underestimate the need for immediate
action. However, as highlighted by the findings in Chapter 3, it seems that trade actions are top-
of-mind for many supply chain managers.
This current analysis studies the actual reactions of organizations which have been
severely impacted by trade actions. As exemplars, I study Chinese firms impacted by US trade
actions. I focus within the IT hardware and semiconductor business sector. I seek to assess the
extent to which firms do (or do not) alter their supply strategies due to the heightened uncertainty
surrounding the US-China trade war.
Research demonstrating the effects of supply chain disruptions on firm performance
includes studies concerning profitability, net sales, costs, and asset and inventory performance.
Such studies demonstrate risks affecting performance in a negative manner (Jones et al., 2015).
Studies from both Narasimhan and Talluri (2009) and Hendricks and Singhal (2005) conclude
that firms must create supply chain management skills, expertise, and infrastructure which puts
prominence on enhancing reliability and responsiveness of their firm. However, the literature
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finds that such skills and experience are challenging to develop. Therefore, further research is
necessary. Additionally, risk mitigation literature demonstrates little consideration of trade risks,
further validating the need to evaluate this area. This work attempts to provide insight on how to
create a reliable and responsive supply chain that is agile enough to withstand adversity and the
continuous changes that are brought forth by the outside disruption due to trade actions.
A few researchers have noted the importance of studying trade risks in supply chains.
Jacobs et al. (2022) highlight that geoplitical events such as trade actions have the ability to
present many unique challenges which can result in an internal operations shutdown.
Additionally, Allen (2021) emphasizes the urgency to further analyze the effects of trade actions
(i.e. sanctions), questioning why US policy makers prioritize security issues over domestic
business interests.
In this paper, the following research questions are explored:
• RQ1: Do customers of firms targeted by trade actions make significant changes to
their supply base?
• RQ2: Do changes in the supply base create advantages or disadvantages to firms
in (a) the targeting country (e.g., US targeting China)? or (b) the target country
(e.g., China targeted by US)?
For the purpose of this research, the targeting country is defined as the country
implementing a restriction on an opposing country to carry out trade (importing and exporting
functions) concerning particular products. The target country/firm is defined as the country/firm
restricted from carrying out trade (importing and exporting functions) concerning particular
products. The supply base is defined as a firm’s current active suppliers that comprise a firm’s
supply network. The intent of this research is to quantitatively demonstrate how supply chain
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organizations react (or fail to react) to impactful trade actions. Figure 4 shows a conceptual
model of the research questions.
Figure 4
Research Question Conceptual Model
Literature Review
The fundamental aspect of this study is to explore trade action implications as trade wars
continue to increase in today’s era and many companies are ill-equipped to manage these
disruptions. Trade wars disrupt supply chains, leading to problems like production stoppages and
shortages to customers, significantly impacting organizations. Further, increased tariff costs can
reduce profits for organizations, financially impacting firms.
Supply chain disruptions are defined as undesirable events which take place, ultimately
damaging the supply chain and performance of firms (Wagner & Bode, 2008). The sources of
supply chain disruptions are varied and can range from weather conditions to terrorist attacks to
other geopolitical issues. These disruptions are often sudden and unpredictable, resulting in
disequilibrium within firms’ supply chain. Thus, supply chain risk mitigation is interjected to
bring forth mitigating measures which can support firms with anticipating or coping with
disruptions (Friesz, 2011).
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Geopolitical issues have increased supply chain vulnerability due to government use of
policy tools to address geopolitical matters. These policy tools consist of implementing
regulations, trade tariffs, sanctions, and bans to gain economic favor as the government deems
suitable. However, the deployment of these policy tools has an adverse effect on supply chains as
it can not only harm foreign firms but also domestic firms (Jacobs et al., 2022).
Trade actions are uncertain and outside of scope for a firm to control since they are the
prerogative of nation states. The costs imposed on firms due to the supply chain disruptions
resulting from government policies can extend beyond monetary concern, including firm
viability as firms’ competitive advantage amongst their global competitors can be jeopardized
(Sodhi et al., 2012). Firms who source their products from other countries can be severely
impacted as the cost of trade actions results in increased prices to make goods, which business
customers and individual consumers must now pay more for. Governments have a role to play in
promoting new industries and supporting the growth of key industries providing recognition that
economies of scale are a key factor in influencing the development of trade. For example, a
developing economy may need tariff protection and domestic subsidies to encourage the creation
of capital-intensive industries. Companies can attain economies of scale by increasing production
and lowering costs (Neary, 2009).
Supply chain management encompassing risk mitigation is the domain within the
literature which is being researched. Supply chain disruptions are usually unanticipated and have
the potential to cause harm to organizations operationally and financially, resulting in costly
recoveries. Thus, organizations must be readily equipped to withstand such disruptions.
Expansion in supply chain globalization is resulting in an increase in geopolitical risks as
firms are now purchasing their goods on a global scale, resulting in firms having to be more
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knowledgeable about the global market place and increase efforts to strengthen supplier
relationships. Global partnerships require more effort, increasing complexity (Zubko, 2008).
Global supply chains are riskier than domestic supply chains due to the various linkages required
among regions which causes firms to be more prone to disruptions. These disruptions result from
macroeconomic and political changes (Manuj & Mentzer, 2008)
Similar to many other types of supply chain disruptions, trade wars which arise from
geopolitical conflicts are considered low probability-high consequence (LP-HC) disruptions
(Knemeyer et al., 2009; Kleindorfer & Saad, 2005). According to Ellis et al. (2010), risk
mitigation efforts are determined by the magnitude of the supply disruption. Further,
uncontrollability advances risk perceptions resulting in outsized risk mitigation efforts.
Market forces and industrial conditions impacting the buyer-supplier exchanges create
pressures for firms to better manage external supplier networks (Gao et al., 2015). Hendricks and
Singhal (2005) conducted a study investigating the long-term stock price effects and equity risk
effects of supply chain disruptions made during 1989–2000. During this period, evidence
indicated that firms did not quickly recover from disruptions, reflecting high equity risk.
Disruptions can be defined as a firms’ inability to match demand and supply (Hendricks &
Singhal, 2005). Hendricks and Singhal (2005) demonstrated that the root causes of disruptions
are challenging to correct as supply chains are vulnerable to disruptions due to the continuous
changes which occur in product markets. They found that risk disruptions are increasing due to
the following four factors:
• Increased complexity due to global sourcing, the large number of supply chain
partners, the need to coordinate many tiers of supply chains, and long lead times.
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• Increased reliance on outsourcing and partnering that has heightened the
interdependencies of different nodes of the global supply network, making it more
likely that a disruption or problem in one link of the supply chain will quickly
ripple through the rest of the chain, bringing the whole supply chain to a halt.
• Single-sourcing strategies may have reduced purchase prices and the
administrative costs of managing the supplier base but may have increased the
vulnerability of supply chains if a single supplier is unable to deliver on time.
• Focusing on reducing inventory, excess capacity, and slack in the supply chain
has more tightly coupled the various links, leaving little room for errors (p. 51).
Direct Effect Hypothesis Development
Hypotheses for this research encompass three areas of study: (1) supply base size, (2)
domestic vs. non-domestic concentration, and (3) the moderating effects of collaborative versus
transactional buyer-supplier relationships. These three hypotheses are outlined below with
arguments in accordance with their respective area of study.
The relationships within supply chain networks are not single line connected, thus being
difficult to describe, predict, and control (Cheng et al., 2014). Supply chains demonstrate having
complex systems due to their many business partners and variety of information and material that
flows through their network (Cheng et al., 2014). Therefore, to minimize the level of uncertainty
in supply chain networks, it is necessary to understand the key roles in supply chain members
and their interactions with one another. Figure 5 depicts a generic supply chain network
demonstrating the various connections within a supply chain network infrastructure. This figure
shows a supply side, production side, and customer side which creates a multi-stage environment
yielding the various connections which create complexity.
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Figure 5
Supply Chain Network
Firms with increased complexity have the added tasks of monitoring and managing their
network due to the number of suppliers and supplier differentiation (Kim & Davis, 2016).
Complex supply chains are known to have more opaque buyer-supplier relationships where
information is not always shared from the supplier to the buyer. Therefore, if a second-tier
supplier made changes to its supplier (third-tier), there is a possibility that the primary firm will
never know that it now has an added supplier (Kim & Davis, 2016).
Tariffs and trade policies impact firms primarily through their supply chain organizations.
Trade actions represent a supply chain risk disruption due to the impact which they impose on a
firm’s supply chain partners. In some cases, firms are banned or restricted from exporting to
targeted customers. In other cases, firms can be banned or restricted from importing from
targeted suppliers. If firms are forced to change suppliers, it has the potential to increase costs,
reduce quality, and/or reduce inventory levels to a dangerous point resulting in lost customers
(Ellis et al., 2010). Thus, firms must remain proactive in modifying their supply base to avoid
risks associated with trade actions.
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Firms that face a high level of uncertainty must gather, interpret, and synthesize more
information to successfully execute tasks than those in stable environments (Daft & Lengel,
1986). Uncertainty is heightened as firms must gather information on an increased number of
variables in complex supply chains which encompass trade actions (Jones et al., 2015). A large
number of suppliers creates high scale complexity for firms, creating a high likelihood of
unreliable data as firms are not characterized by single-sourcing environments. This creates a
high level of differentiation amongst suppliers, creating great uncertainty.
According to Galbraith (1973), there are two broad strategies proposed for managing
uncertainty. The first strategy consists of the creating of slack resources. This is defined as the
creation of slack resources to absorb the uncertainty generated by complexity in supply chains,
involving the creating of extra capacity and extra inventory. However, this is not directly related
to the individual supplier (Chopra & Sodhi, 2004). The creation of slack will increase resources
rather than utilize existing resources (Galbraith, 1973). One intent of slack resources is to buffer
against effects of disruptions (Jones et al., 2015). A second strategy for managing uncertainty is
to enhance the information processing capacity by increasing supply chain visibility. Visibility is
referred to as identifying and understanding inventory and demand across the upstream supply
chain (Braunscheidel & Suresh, 2009), which permits firms access to inventory movements
using technology to proactively manage potential risks.
The firm decision-making process with respect to supply chain disruptions results from
“perceptions of risk influence adoption of business and supply strategy” (Ellis et al., 2010, p. 35).
According to March and Shapira (1987), managers view risk as perceptual rather than objective.
Thus, individuals evaluate options in relation to outcomes to support their perceptions of gains
and losses. Therefore, firms will expand their supply base to decrease the liklihood of being
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dependent on any one supplier. However, it is important to note that an increase in supply base
increases complexity due to various uncertainties encompassing geopolitical risks, product
performance, and supplier relationships (Ellis et al., 2010).
In the domain of supply chain management, selecting the right suppliers is critical to
ensuring smooth operations. This entails carefully evaluating potential suppliers to find the best
fit in terms of quality, quantity, delivery location, and timing. The literature distinguishes
between two main types of supplier selection challenges: single sourcing and multiple sourcing.
Single sourcing occurs when one supplier can meet all needs and decision-makers to choose this
as the most suitable option (Allon & Van Mieghem, 2010). Conversely, multiple sourcing comes
into play when either no single supplier can fully meet demand or the company wishes to
maintain diversity in its supply base, necessitating engagement with multiple suppliers.
Academic literature emphasizes the significance of supplier selection decisions for the
resilience and effectiveness of supply chains. Solely relying on one supplier, or single sourcing,
poses risks to operational continuity. Any disruptions affecting the sole supplier can lead to
shortages, delays, and increased vulnerability to market fluctuations, underscoring the need to
diversify the supplier base (Choi & Linton, 2011). Multiple sourcing, on the other hand, offers
greater resilience and adaptability in navigating challenges, enhancing the ability to sustain
operations and respond to market changes effectively. Furthermore, research supports the
advantages of multiple sourcing in mitigating supply risks. Extensive multi-tier sourcing
provides enhanced control over supply chains and access to valuable information (Ding et al.,
2007). Studies illustrate how multiple sourcing helps alleviate uncertainties in lead times,
procurement costs, and exchange rates (Xiao et al., 2015). These findings contribute valuable
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insights into the strategic importance of diversifying the supplier base to bolster resilience and
mitigate disruptions in supply chains. This leads us to the first hypothesis:
H1: Customers of firms targeted by trade actions will expand their supply base (i.e.,
increase their number of suppliers).
In addition to expanding a firm’s supply base, buyers are likely to consider the geographic
diversity of their suppliers. Bode and Wagner (2015) explore the concept of spatial complexity
which is defined as the geographic distance between firms and suppliers (Jacobs et al., 2022).
Spatial complexity can result in an increase in firm risk, so it might be expected that buyers
would reduce the geographic diversity of their suppliers.
Jacobs et al. (2022) showed how a firms’ stock market reaction relates to trade actions
imposed on a targeted firm and firms associated with the targeted firms supply chain eco-system.
The study used the firm ZTE, a Chinese telecommunications manufacturer, as a case study to
depict how the 2018 US government ban impacted the firm. They highlighted that policymakers
should be mindful of the implications imposed by trade actions for both domestic and non-
dometsic firms, in addition to investors being aware of the extent of the impacts as there are
economic consequences associated with the trade actions that are imposed on targeted firms.
Jacobs et al. (2022) note that trade actions imposed by the targeting country will restrict
transactions with the targeted firm and suppliers in the targeting country, resulting in financial
performance of suppliers of targeted firms to be impacted. Additionally, firm reputation is in
jeopardy of being damaged as a result of firm reliability and dependability being affected by the
trade action disruption (Allen, 2021).
Firms are likely to increase their suppliers in the targeting country and reduce their
suppliers in the targeted country due to risk. Suppliers that are located domestically or in the
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targeting country can be deemed as a safer option to partner with to reduce global challenges
inflicted by trade actions which create complexity. The automotive industry is an example as
domestic assemblers (e.g., Chrysler, Ford, General Motors) seek to partner with domestic
suppliers due to sudden changes in market conditions, which create an added stress for firms.
Partnering domestically with suppliers can provide a short-term profit-maximizing strategy for
buyers (Zhang et al., 2009).
Additionally, reshoring, as defined by Młody and Stępień (2020), encompasses various
shifts in manufacturing locations. One such example is back-reshoring, which denotes the return
of manufacturing activities to the company's home country. Another is near-reshoring, involving
relocating manufacturing to a country geographically close to the company's location. Gray et al.
(2013) highlight that back-reshoring primarily concerns the ‘where’ of relocated production,
irrespective of the ‘who’ involved in performing these activities. The evidence of reshoring
activities has proliferated in recent years through economic press coverage, consulting firm
reports, and international organization publications. These findings imply that reshoring
decisions may be influenced, in part, by more favorable conditions in the home country.
Consequently, reshoring could be anticipated to have a positive impact on the performance of
reshoring firms in certain circumstances. Research indicates that reshoring has increased
productivity in small and medium-sized enterprises (SMEs), particularly when they repatriated
production from distant and developing countries such as those in Asia. Thus, I hypothesize:
H2: Trade actions will prompt customers of targeted firms to increase the concentration
of their supply base in the targeting country.
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Moderating Hypothesis Development
Transactional relationships are characterized by short-term interactions focused on
specific transactions, where the buyer seeks the best price and terms without necessarily building
a long-term partnership. In contrast, collaborative relationships involve long-term commitments
and mutual trust between the buyer and supplier, with a focus on achieving shared goals and
creating value together. Buyers should consider using transactional relationships when they
require flexibility and agility in their supply chain, such as for one-time purchases or when
dealing with commoditized goods where price is the primary concern. On the other hand,
collaborative relationships are beneficial when the buyer seeks innovation, reliability, and
strategic alignment with suppliers. These relationships are essential for complex products or
services requiring continuous improvement and customization.
Despite the potential benefits of domestic partnerships in reducing risks, firms often
experience relational stress in supplier relationships due to differing expectations and challenges
in achieving them. This stress can hinder collaboration and innovation. Therefore, external
networks play a crucial role as a source of modernization for firms, enhancing product
innovation and providing a competitive advantage with the support of suppliers (Gao et al.
2015). In situations involving multiple suppliers, competition for buyers' attention intensifies,
prompting proactive information sharing from suppliers. This phenomenon stimulates a
collaborative environment and knowledge sharing among suppliers and buyers (Gao et al.,
2015). For example, Toyota's success can be attributed to its knowledge-sharing platform with
suppliers, where reciprocal sharing of information occurs (Dyer & Hatch, 2004). Suppliers are
obligated to exchange information about their suppliers, fostering a collaborative environment. A
key relational process in supplier relationships is the ability for both parties to collaborate and
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share novel information, mitigating risk and contributing to a firm's performance (Zhang et al.,
2009). This collaborative approach fosters innovation, enhances supply chain resilience, and
strengthens the competitive position of the buyer firm.
Increasing supplier and buyer collaboration influences a firm’s supply base as firms are
more likely to invest in supporting their buyer-supplier relationships due to the cooperative
actions with their partners. As a result, buyers may be less willing to collaborate with domestic
suppliers in comparison to international suppliers due to the similtaneous cooperation. Thus,
collaborative supplier relationships stimulate a suppliers willingness to invest in further
enhancing their relationship, rather than expanding their supply base. For instance, within the
automotive industry, where a significant portion of annual revenues relies on goods sourced from
external suppliers, the supportive buyer-supplier relationships cultivate a culture of collaboration
and mutual investment (Zhang et al., 2009). Additionally, transactional relationships tend to have
less attachment between buyers and suppliers, making buyers more prone to switching. This is
because transactional arrangements entail lower switching costs. On the other hand, collaborative
relationships involve significant investments in the relationship and thus are less likely to switch
suppliers. While collaborative relationships offer numerous benefits, they also entail higher
switching costs. This leads to the formulation of the following pair of hypotheses:
H3a: If customers of firms targeted by trade actions engage in collaborative supplier
relationships, they will be less likely to expand their supply base.
H3b: If customers of firms targeted by trade actions engage in collaborative supplier
relationships, they will be less likely to increase the concentration of their supply base in
the targeting country.
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The key to this study is to explore the phenomenon of trade actions and the supplier
strategies in supply chain organizations to mitigate against trade policy changes. The study tests
the linkages between trade actions, firms targeted by trade actions, their customers, and their
supplier relationships. Figure 6 is a conceptual model of the tentative hypotheses.
Figure 6
Conceptual Model of Hypotheses
Study Design
Operationalization of Variables
Supply Base Size: For the research on supply base size, the measurement of H1 involves
comparing the number of suppliers post-event to pre-event. I utilized the percentage of a focal
company's total expenditure supplied by Bloomberg (Kim & Davis, 2016). To obtain the number
of suppliers, I utilized the mean and median of the Type % supplied by Bloomberg for each
supplier and then inverted them. It was imperative to maintain a clear distinction between Cost of
Goods Sold (COGS) and capital expenditures (CAPEX) suppliers as the calculations depend on
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the type of percentages provided by Bloomberg, thus necessitating separate treatment of these
supplier categories. Alternative methods to measure supply base concentration were also present.
For example, supplier concentration can be measured with Equation 1 where Si is the share of
COGS expended on firm i and N is the total number of suppliers (Steven el al., 2014).
Supplier Concentration = ∑𝑆𝑖
𝑁
𝑖=1 (1)
Additionally, Schwieterman et al. (2018) use a Herfindal-Hirschman index to measure supply
base concentration. The Herfindal-Hirschman index uses the total number of suppliers to
calculate concentration, placing a heavier weight on the larger suppliers. The Herfindal-
Hirschman index formula (Equation 2) states S as the percentage of business the supplier
represents for the focal firm.
∑𝑆𝑖
2𝑛
𝑖=1 (2)
These methods provide a nuanced understanding of supplier concentration by considering the
distribution of expenditures across all suppliers. However, for simplicity and ease of analysis, I
choose to measure supply base size using the number of suppliers engaged by the focal company.
Targeting Country Concentration: Concentration was calculated as the percentage of the
buyers’ suppliers within the targeting country. First, I tallied the number of suppliers that operate
within each country of interest (i.e., US, China, or other nations). Next, I calculated the
proportion of suppliers in each country by dividing the number of suppliers in that country by the
total number of suppliers in the dataset. This computation yielded the relative concentration of
suppliers within each targeting and targeted country.
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Collaboration versus Transactional: To determine the distinction between transactional
and collaborative customer relationships, a thorough web search was conducted for each
customer to identify any indications of collaborative engagements. If evidence of collaborative
interactions, such as joint initiatives, shared goals, or mutual investments, was found during the
search, the customer was categorized as collaborative. Conversely, if no evidence of such
collaborative relationships could be discerned, the customer was labeled as transactional.
This approach ensured a comprehensive assessment of each customer's engagement style
and enabled me to accurately categorize them based on the presence or absence of collaborative
practices. To calculate the differing effects between collaboration and transactional supplier
relationships, I first identified the pre-event period and the post-event period. Within each period,
I determined the percentages of suppliers categorized as transactional and collaborative across
different supplier types (e.g., US COGS suppliers, Chinese COGS suppliers, US CAPEX
suppliers, Chinese CAPEX suppliers). This involved calculating the proportion of transactional
and collaborative suppliers among the total supplier base for each period. Next, I computed the
difference in percentages between the pre-event and post-event periods for both transactional and
collaborative suppliers within each supplier type category. After differences were determined, I
subtracted the difference in percentages for collaborative suppliers from the difference in
percentages for transactional suppliers for each supplier type category to derive the overall
difference. This analysis enabled me to distinguish the impact of collaborative practices on
supply chain dynamics before and after the event, demonstrating the effectiveness of
collaboration in mitigating supply chain disruptions following trade actions.
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Sample
The sample frame focuses on the US-China trade war in the IT hardware and
semiconductor industry. The IT hardware and semiconductor industry was selected for this study
due to its global importance as this industry plays a vital role in the manufacturing of most
electronic devices ranging from cellular phones to vehicles. For example, when the world was
faced with the COVID-19 global pandemic, individuals were able to work remotely, stay
connected with friends and family, and order goods online due to semiconductor enabled
technologies. The semiconductor enabled technology permitted society to continue to function
during this trying time as individuals were also able to seek remote healthcare from physicians
while scientists developed treatments to regain mankind’s health through the invention of
specific vaccines. The semiconductor industry is a multibillion-dollar industry that totaled $49
billion in 2020 from US exports, being the fourth highest among US exports behind airplanes,
refined oil, and crude oil (Association, 2022). In June of 2021, the US government passed the US
Innovation and Competition Act (USICA) which increased chip manufacturing, research, and
design granting the semiconductor industry $52 billion (Association, 2022).
Two firms targeted by trade actions within the IT hardware and semiconductor business
sector were the focus of this quantitative research. The firms identified for this study were ZTE
and Hikvision. These firms were selected due to their public targeting in the US Code of Federal
Regulations (CFR), which stated a prohibition for telecommunications and video surveillance
services or equipment from these companies (Code of Federal Regulations, 2022). The ban was
implemented due to the US stating these firms posed a threat to national security. Further, these
firms were selected as they significantly impacted the US telecommunications industry. For
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example, an estimated 25% of the Rural Wireless Association (RWA) used their equipment and
depended on them for commercial viability.
ZTE is a global leader in telecommunications and smartphone manufacturers, is the
fourth largest telecommunications manufacturers in the world, and is one of the largest sellers of
smartphones in the US (Jacobs et al., 2022). In 2018, ZTE reported an annual revenue of $85.51
billion (Xinhua, 2109). Hikvision is a Chinese manufacturer and supplier of video surveillance
equipment for civilian and military use. Hikvision is the world’s leading video surveillance
equipment supplier having over 2,400 partners in over 155 countries, generating over $7 billion
in revenue in 2018 (Yang, 2022).
The following is a trade action timeline depicting the various government action that
were imposed on these two firms since 2018.
(1) April 2018: The Department of Commerce banned US companies from providing
exports to ZTE for seven years.
(2) May 2019: The US passed a bill banning Hikvision from holding any contracts with the
federal government.
(3) November 2019: The US Federal Communications Commission (FCC) also prohibited
contractors from using Federal subsidies (i.e., the Universal Service Fund) to purchase
inputs from ZTE.
(4) June 2020: The FCC designated ZTE as national security threats under
the Communications Act of 1934, which provides for the regulation of interstate and
foreign communication by wire or radio, and for other purposes.
(5) October 2021: The US House of Representatives passed a Bill that would effectively
ban the importation and sale of all new products from Hikvision.
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Based on this timeline, 2018 is designated as the year of US trade actions against ZTE,
and 2019 is designated as the year of US trade actions against Hikvision.
The study used data sources (i.e., Government Bureaus and Business Press) to analyze
the firms. I also collected Bloomberg SPLC data. SPLC is a database within Bloomberg to
conduct supply chain research by entering a company’s name, permitting all the company’s
customers and suppliers to be displayed. Detailed analysis was conducted over a three-year
period, divided into pre-trade action (2015-2017 for ZTE and 2016-2018 for Hikvision) and post-
trade action (2019-2021 for ZTE and 2020-2022 for Hikvision), with the trade actions occurring
in 2018 for ZTE and 2019 for Hikvision.
Data Collection Methods
Data collection methods involve utilizing Bloomberg Supply Chain data to study the
selected firms and their primary customers. The sample size, comprising nine customer firms per
targeted firm, facilitates understanding of the repercussions of trade actions on supply chain
customers and the associated advantages and disadvantages for firms and their customers.
Bloomberg Supply Chain data offers comprehensive information regarding firms'
customers, suppliers, and sub-suppliers. This data, sourced from publicly disclosed historical
records dating back to 2006, allows for analysis during the designated time periods selected for
each firm. Through Bloomberg Supply Chain data analysis, I aimed to answer pivotal questions
regarding the customers of the targeted companies and the suppliers of customer firms. Thus, I
used Bloomberg SPLC to answer the following two questions: (1) Who are the two targeted
company’s customers? and (2) Who are the customer firms’ suppliers? An example of the
Bloomberg SPLC and instructions for how to use the software can be found in Appendix E.
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Due to the necessity of having sufficient pre- and post-trade action data, many customers
had to be eliminated from the study. Consequently, the final count reveals that nine customer
firms were selected for both ZTE and Hikvision, making a total of 18 customer firms. Data
revealed that ZTE customers had a range of 30-41 suppliers each, while Hikvision customers had
a range of 17-25 suppliers each. This sample size, though small, still provided a substantial
overview of the impact of trade actions on firms and their supply base. Understanding this
impact is crucial for managers in supply chain management to formulate viable measures within
their sourcing strategies, mitigate trade action risks, and adapt swiftly if the government imposes
trade actions affecting their firm.
The analysis aimed to scrutinize the influence of customer firms on their supply base
over a seven-year period. By examining the changes in the supply base three years before and
after the trade actions, this study saught to comprehend the disparities in pre- and post-trade
action supply bases. This methodology serves as a proof of concept to address research questions
concerning supply base strategies in firms amidst changing trade policies. Future research
endeavors may expand this analysis to encompass other companies, countries, and industries.
Data analysis consistsed of identifying customers and suppliers from Bloomberg SPLC
and exporting this information into Microsoft Excel. The steps consisted of identifying the firm,
identifying customers and suppliers from the database, isolating the supply chains being studied
and removing the outliers that may cause distortion to empirical data, and inputting information
to Microsoft Excel.
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Results
Consideration of H1
The first analysis considered H1, whether customers of targeted companies expanded
their supply bases after trade actions were implemented.
I first focused on the COGS suppliers, which represented the direct costs of producing
goods or services as it provides insight into firms' operational changes in response to trade
actions. Starting with the combined results for both ZTE and Hikvision customers, a significant
rise in the median number of COGS suppliers was observed, supporting the overall trend of
diversifying the supplier base. Specifically, the median number of total COGS suppliers
increased from 55.9 during the pre-trade action period to 84.0 during the post-trade action
period, an increase of 28.2 suppliers. The Mann–Whitney U-Test revealed a significant increase
in the median number of suppliers, p < 0.01. For ZTE customers only, while the mean number of
COGS suppliers increased slightly (but insignificantly), a significant change was observed in the
median, with an increase from 39.1 to 79.4 suppliers, p < 0.001. For Hikvision customers, they
exhibited a statistically significant increase in median, with an increase from 62.9 to 84.7 COGS
suppliers, p < 0.01.
Moving to CAPEX, ZTE customers showed no statistically significant difference in
means, but a significant increase in the median, going from 25.4 to 49.5 suppliers, p < 0.001.
Hikvision customers, although showing a notable decrease in mean number of CAPEX suppliers,
lacked statistical significance in the median difference. However, the combined analysis for ZTE
and Hikvision customers highlights a significant increase in the median number of CAPEX
suppliers, indicating a noteworthy shift in supplier distribution.
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It is important to note that the data was skewed, and thus changes in median are more
representative than changes in means. This underscores the systematic change in the distribution
of suppliers, supporting the hypothesis that firms tend to expand their supplier base in response
to the events in question.
In Table 7, the data analysis revealed notable shifts in the distribution of the number of
suppliers for different subsamples during the post-event period compared to the pre-event period.
The mean and median numbers of suppliers for each customer in each pre/post-event year were
examined. Post-event and pre-event periods consisted of three years each.
Table 7
Comparison of Number of Suppliers
Consideration of H2
H2 examined whether customers of targeted companies changed the composition of their
suppliers in either the targeted or targeting countries. In the research context, China was the
targeted country and the US is the targeting country.
For the combined analysis of both COGS and CAPEX suppliers to customers of
Hikvision and ZTE, there is a non-significant increase in the mean percentage of Chinese
suppliers. This finding holds when considering Hikvision and ZTE customers separately.
The next analysis examined the combined COGS supplier sample before discussing ZTE
and Hikvision customers separately. In considering the COGS sample, I observed significant
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shifts in the percentage of Chinese suppliers for Hikvision customers. There was a statistically
significant decrease in the percentages of Chinese suppliers, indicating a notable shift in supplier
composition. Conversely, for ZTE, while there was an increase in the percentages of Chinese
suppliers, this change was not statistically significant. When combining the analysis of COGS
suppliers for both companies there was not a statistically significant change. I would like to note
that there was no data for Hikvision customers’ CAPEX suppliers. For ZTE customers CAPEX
suppliers, there was a non-significant effect. Table 8 compares the changes in the distribution of
Chinese suppliers during the post-event period compared to the pre-event period across various
subsamples. Post-event and pre-event periods consisted of three years each.
Table 8
Comparison of Percentage of Chinese Suppliers
Next, I analyzed US suppliers as presented in Table 9. The results suggested no
significant changes in the percentages for US suppliers of Hikvision and ZTE customers
combined or individually, with only a slight increase observed in the percentage for Hikvision
customers’ COGS suppliers. Post-event and pre-event periods consisted of three years each.
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Table 9
Comparison of Percentage of US Suppliers
To provide a comprehensive analysis, I considered suppliers located in countries other
than the US or China. Table 10 presents the results for suppliers in countries other than the US or
China and it revealed mixed results. While the combined analysis for Hikvision and ZTE
customers shows a negligible decrease in the percentage of suppliers from other countries, this
difference is not statistically significant. However, the individual analysis for Hikvision
customers and ZTE customers indicates that there are no significant changes in the distribution
of suppliers from other countries for COGS, with Hikvision customers experiencing a decrease
and ZTE customers an increase. These changes were not statistically significant.
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Table 10
Comparison of Percentage of Non-US and Non-China Suppliers
In summary, the findings provide partial support for H2. H2 posited that customers of
targeted companies would alter their supplier composition in response to trade actions. The
significant decrease in the percentage of Chinese suppliers for Hikvision customers aligns with
this hypothesis, indicating a notable shift in supplier composition. However, for ZTE customers,
while there is an increase in the percentage of Chinese suppliers, this change was not statistically
significant. Yet, when considering both Hikvision and ZTE customers together, there is a
significant decrease in the percentage of Chinese suppliers, suggesting that trade actions may
indeed prompt adjustments in supplier composition. Therefore, while the evidence is mixed, the
overall trend supports H2. This indicates that trade actions influence supplier composition, albeit
with some variations across different companies.
Consideration of H3a
The data analysis comparing the mean and median number of suppliers in the pre-event
and post-event periods based on the nature of buyer-supplier relationships (collaborative or
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transactional) provided insights into the dynamics of these relationships in the context of ZTE
and Hikvision customers. This analysis was crucial for a research study, as it shed light on the
variations in the supplier landscape, which may have implications for supply chain management
and strategic decision-making. It is important to note that since the small sample sizes were
further reduced by dividing into collaborative and transactional subgroups, statistical testing may
not be feasible due to the low power of the analysis.
The research investigated the moderating effects of collaborative versus transactional
buyer-supplier relationships, as outlined in H3a and H3b. H3a suggests that if customers of firms
targeted by trade actions engage in collaborative supplier relationships, they will be less likely to
expand their supply base. H3b extends this idea, proposing that if customers of firms targeted by
trade actions engage in collaborative supplier relationships, they will be less likely to increase
the domestic concentration of their supply base.
For H3a, Table 11 suggests that customers engaged in transactional buyer-supplier
relationships will be more likely to expand their supply base, as indicated by the mostly positive
values in the right-hand column. Findings exhibited that in collaborative relationships, both mean
and median supplier numbers for COGS and CAPEX generally showed an increase from the pre-
event to the post-event period (three years each). However, the increase is more modest
compared to transactional relationships, especially evident in the median values. This supports
H3a, suggesting that customers in collaborative relationships are indeed less likely to expand
their supply base significantly compared to those in transactional relationships.
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Table 11
Comparison of Suppliers Moderated by Collaborative/Transactional Relationship
Figure 7 compares the mean and median number of COGS suppliers for customers of
both ZTE and Hikvision in the pre-event and post-event periods, depending on whether the
customer employs collaborative or transactional buyer-supplier relationships. The post-event and
pre-event periods each consist of three years.
Figure 7
COGS Suppliers Moderated by Collaborative/Transactional Relationship
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Figure 7 illustrates the mean and median number of COGS suppliers categorized by
collaborative and transactional buyer-supplier relationships during the pre-event and post-event
periods. In collaborative relationships, the post-event period shows a slight increase in both mean
and median supplier numbers, indicating a modest expansion of the COGS supplier base.
Conversely, in transactional relationships, there is a greater increase in both mean and median
supplier numbers post-event, demonstrating an increase in the COGS supplier base.
Regarding the analysis of H3a, which explores whether customers engaged in
collaborative supplier relationships are less likely to expand their supply base, the median results
from Figure 7 support this hypothesis. The lines representing the median number of suppliers in
collaborative and transactional relationships are not parallel, with transactional relationships
showing a more significant increase. This suggests that transactional relationships are associated
with a greater expansion of the supply base, providing empirical support for H3a.
Figure 7 provides empirical support for the moderation effects of collaborative and
transactional buyer-supplier relationships in the context of COGS suppliers and trade actions,
particularly supporting H3a by indicating that customers in collaborative relationships are less
likely to expand their supply base significantly compared to those in transactional relationships.
Figure 8 compares the mean and median number of CAPEX suppliers for customers of
both ZTE and Hikvision in the pre-event and post-event periods, depending on whether the
customer employs collaborative or transactional buyer-supplier relationships. The post-event and
pre-event periods each consist of three years. The figure provides insights into the mean and
median number of CAPEX suppliers categorized by collaborative and transactional buyer-
supplier relationships. In collaborative relationships, the post-event period shows a moderate
expansion in the CAPEX supplier base, with both mean and median supplier numbers increasing.
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In contrast, for transactional relationships, there is a decline in the mean number of CAPEX
suppliers after the event, but an increase in the median number of CAPEX suppliers.
Figure 8
CAPEX Suppliers Moderated by Collaborative/Transactional Relationship
Contrary to H3a, the median values increased at a similar rate in both collaborative and
transactional relationships, suggesting that customers, regardless of their engagement type, are
expanding their CAPEX supplier base after trade actions. This observation contradicts the
hypothesis that customers engaged in collaborative supplier relationships would be less likely to
expand their supply base, as the median values show an increase.
Overall, this analysis provides empirical evidence for the dynamics of collaborative and
transactional buyer-supplier relationships in the context of CAPEX suppliers and trade actions.
However, the observed increase in median values contradicts the expectation set by H3a,
indicating the need for further exploration and analysis. In summary, the data lends support to
H3a for COGS suppliers but not for CAPEX suppliers.
Consideration of H3b
Concerning H3b, which considers whether customers engaged in collaborative supplier
relationships are less likely to increase the domestic concentration of their supply base, further
analysis using tables and plots to show changes in the percentage of US and Chinese suppliers is
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provided in Table 12 and Figure 9. Table 12 provides differences between pre-event and post-
event periods, examining the potential impact of supplier engagement strategies based on
collaborative and transactional relationships. Although some changes are notable, especially that
for Chinese CAPEX suppliers, the difference in changes between collaborative customers and
transactional customers are largely similar.
Table 12
Comparison of US/Chinese COGS and CAPEX Suppliers
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Figure 9
Comparison of US/Chinese COGS and CAPEX Suppliers, Graph
Upon examination of Figure 9, it appears that there is no substantial support for
hypothesis H3b. The figures across all categories are nearly parallel, indicating no significant
moderating effect. The evidence suggests that both collaborative and transactional customers
change their percentage of suppliers similarly in either the targeted or targeting countries. While
there seems to be a notable increase in the percentage of Chinese CAPEX suppliers, the increase
is almost identical for both transactional and collaborative customers. This lack of differentiation
between the two customer types in their supplier engagement behaviors indicates that the
collaborative relationships do not seem to have an impact on altering the domestic concentration
of the supply base, as hypothesized. In summary, the empirical evidence fails to support H3b.
This unexpected outcome may be attributed to several factors, including the possibility of
a small sample size, methodological limitations, or other unaccounted variables. It is crucial to
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acknowledge the complexity of supply chain dynamics and the multitude of factors that can
influence supplier engagement behaviors. Additionally, the nature of collaborative relationships
and their effectiveness in mitigating supply chain disruptions may vary depending on industry,
geographical region, or other factors. Therefore, the failure to find supporting evidence suggests
that further research is needed to better understand the nuanced effects of collaborative buyer-
supplier relationships on the domestic concentration of the supply base. Future studies could
explore alternative methodologies, expand the scope of analysis to include a broader range of
variables, or examine different industry contexts to provide more comprehensive insights into the
moderating role of collaboration in supply chain management strategies.
Robustness Checks
In this section, robustness checks are presented for each hypothesis. Such checks are
critical in research to ensure the reliability and consistency of results across different analytical
approaches or datasets. These additional analyses provide further confidence in the validity of
the hypotheses and strengthen the overall robustness of the research findings.
H1 Robustness Check
A robustness check for hypothesis H1 was conducted to validate the findings regarding
the expansion of the supply base by customers of firms targeted by trade actions. By using a
shorter timeframe consisting of the earliest year for the pre-event period and the latest year for
the post-event period, this robustness check aims to confirm that the observed expansion in the
supply base during trade actions holds true with a greater separation between event periods.
The results (Table 13) present a comparison of mean and median numbers of all suppliers
during the one-year post-event period versus the one-year pre-event period. The findings align
closely with the main analysis, demonstrating significant differences in the mean and median
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number of suppliers for specific subsamples, such as median ZTE customers’ COGS suppliers
and Hikvision customers’ COGS suppliers. However, while differences are noted for median
ZTE customers’ CAPEX suppliers, they are only marginally significant. Overall, the consistency
between the main analysis and the robustness check provides additional support for H1,
indicating that customers of firms targeted by trade actions tend to expand their supply base,
reducing supply base concentration, even when considering a shorter timeframe of analysis.
Table 13
Robustness Check of All Suppliers
H2 Robustness Check
A robustness check was conducted to ensure the reliability and consistency of the main
analysis regarding the changes in the distribution of Chinese suppliers for Hikvision and ZTE
customers post-trade actions. This check involved focusing solely on Chinese suppliers during
the post-event period compared to the pre-event period, but with a slight variation. Instead of
considering the entire three-year periods, I narrowed down the analysis to only one year for each
period. This adjustment aims to maximize the temporal separation from the trade action year,
providing a clearer understanding of any shifts in supplier composition.
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For ZTE customers, this means comparing data from 2015 to 2021, while for Hikvision
customers, it involves examining data from 2016 to 2022. By focusing on the first year of the
pre-event period and the last year of the post-event period, we aim to capture any long-term
effects of the trade actions on supplier relationships, mitigating potential short-term fluctuations.
This adjustment inevitably reduced the sample size, as I analyzed data from only two years
instead of six. Despite this limitation, the robustness check revealed consistent trends with the
main analysis, reaffirming the validity of our findings.
The results of this robustness check are presented in Table 14. They indicated a 7.39%
increase in the percentage of Chinese suppliers for Hikvision and ZTE customers combined, but
the difference was not statistically significant. Interestingly, this increase is driven by ZTE
customers, while Hikvision customers showed a negligible decrease in Chinese suppliers.
Analyzing COGS suppliers specifically, Hikvision customers experience a substantial 52.32%
decrease in the percentage of Chinese suppliers, while ZTE customers see a remarkable 66.84%
increase; both were statistically significant. Unfortunately, data for CAPEX suppliers was
unavailable for Hikvision customers in this specific analysis. Despite the reduced sample size,
the noteworthy changes in the distribution of Chinese suppliers, particularly for COGS, remain
evident. However, Chinese COGS suppliers seem to be increasing, driven by the large increase
from ZTE customers. The significant decrease in Chinese COGS suppliers to Hikvision
customers partially confirms the main findings regarding the changes in the distribution of
Chinese suppliers post-trade actions for Hikvision and ZTE customers. This provides some
support for the observed trends in supplier composition.
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Table 14
Robustness Check of Chinese Suppliers
Table 15 presents the robustness check focusing on US suppliers during the post-event
period compared to the pre-event period, considering only one year for each period. The data
largely echoes the main analysis, indicating small but non-significant changes in the overall
distribution of US suppliers. While there was a slight increase in the mean percentage for
Hikvision and ZTE customers combined, this change is not statistically significant. Individually,
both companies show minor fluctuations in the mean and median percentages for COGS and
CAPEX suppliers, with no consistent patterns observed.
These findings reinforce the stability in the composition of US suppliers for both
companies and support the reliability of the main analysis results.
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Table 15
Robustness Check of US Suppliers
In the robustness check focusing on suppliers from countries other than the US or China
during the post-event period compared to the pre-event period, considering only one year for
each period, the data continues to reveal mixed results. As seen in Table 16, while the combined
analysis for Hikvision and ZTE customers indicates a negligible decrease in the percentage of
suppliers from other countries, this change is not statistically significant. However, the individual
analysis for Hikvision and ZTE customers highlights greater changes in the distribution of
suppliers from other countries, particularly in the COGS category, although the changes are not
statistically significant. Hikvision customers experience a decrease, whereas ZTE customers
shows a substantial increase. This consistent pattern with the main analysis underscores the
robustness of the observed changes in the distribution of suppliers from other countries,
especially in the COGS category.
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Table 16
Robustness Check of Non-US and Non-China Suppliers
H3a Robustness Checks
When considering only a single-year pre- and post-event period as we did in our
robustness checks for H1 and H2, I had insufficient data to examine H3a and H3b. Instead, I
conducted a different robustness check. In the main analyses of H3, I examined suppliers to both
ZTE and Hikvision customers combined. For the robustness check of H3a, I considered the two
sets of customers separately as can be seen in Figure 10.
Figure 10
Robustness Check of COGS Suppliers for Hikvision Customers
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The robustness check in Figure 10 focuses specifically on Hikvision's supplier base,
examining the mean and median number of COGS suppliers. The data revealed increases in the
number of suppliers for both collaborative and transactional relationships. For collaborative
relationships, the mean number of suppliers rose from 19.72 to 21.30, while for transactional
relationships it increased from 35.80 to 39.81. The median values also saw significant changes,
particularly for transactional relationships, which surged from 76.92 to 169.49. Overall, based on
these observations, Figure 10 provides some evidence that collaborative relationships may offer
a more stable supply base, as indicated by the smaller increase in supplier numbers compared to
the significant surge in transactional relationships.
The robustness check presented in Figure 11 focuses specifically on ZTE customers,
providing nuanced insights into the comparison of mean and median COGS suppliers concerning
collaborative and transactional buyer-supplier relationships. In the collaborative category, the
mean number of suppliers for ZTE exhibits marginal change, decreasing slightly from 16.6 in the
pre-event period to 16.1 in the post-event period. The median number of suppliers in this
category sees a modest increase from 27.6 to 49.0, supporting the hypothesis that collaborative
relationships tend to have a more stable supply base.
Figure 11
Robustness Check of COGS Suppliers for ZTE Customers
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Contrastingly, within the transactional category for ZTE customers, both the mean and
median number of COGS suppliers witness noticeable upticks from the pre-event to the post-
event period. The mean number of suppliers grows from 33.1 to 38.7, and the median
experiences a substantial increase from 44.3 to 108.7. These findings align with the hypothesis
that firms engaged in transactional buyer-supplier relationships, such as those involving ZTE, are
prone to expanding their supply base significantly following trade actions.
In summary, the results from Figure 11, focusing on ZTE, corroborate the broader trend
observed in the analysis and robustness checks. It reinforced the notion that collaborative
relationships serve as a moderating factor in the expansion of the supply base, while
transactional relationships, particularly for ZTE, are linked to a more pronounced increase in the
number of suppliers post-event.
Next, I examined CAPEX suppliers to Hikvision customers. Figure 12's robustness check
delves into the mean and median number of CAPEX suppliers for Hikvision customers, focusing
on the distinction between collaborative and transactional buyer-supplier relationships. In the
collaborative category, the mean number of suppliers for Hikvision customers notably decreases
from 53.4 in the pre-event period to 6.0 in the post-event period. A similar trend is observed in
the median number of suppliers, which decreases from 51.8 to 32.0. These findings suggest a
substantial reduction in the supplier base for Hikvision customers with collaborative
relationships post-event.
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Figure 12
Robustness Check of CAPEX Suppliers for Hikvision Customers
Conversely, within the transactional category for Hikvision customers, the mean number
of suppliers remained relatively stable. The mean number of suppliers was 6.8 in both the pre-
event and post-event periods. However, the median number was 6.8 in the pre-event period and
increased to 32.0 in the post-event period. This indicates that Hikvision customers with
transactional relationships exhibit a consistent supplier base but with an increase in the median
post-event.
In summary, Figure 12 serves as a robustness check to compare the mean and median
number of CAPEX suppliers for Hikvision customers in the pre-event and post-event periods,
contingent upon whether the customer engages in collaborative or transactional buyer-supplier
relationships. Unlike earlier analyses, which examined CAPEX suppliers for both ZTE and
Hikvision customers, Figure 12 focused exclusively on Hikvision customers. In the collaborative
category, the mean and median numbers of suppliers notably decrease post-event, indicating a
significant reduction in the supplier base for Hikvision customers with collaborative
relationships. Conversely, within the transactional category, the mean number of suppliers
remains relatively stable, while the median number increases post-event. This suggests that
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Hikvision customers with transactional relationships maintain a more consistent supplier base
with a slight increase in the median number of suppliers post-event. Overall, the comparison
provided by Figure 12 underscores the distinct dynamics of CAPEX suppliers for Hikvision
customers, highlighting the impact of collaborative versus transactional buyer-supplier
relationships on the supplier base in the post-event period.
The robustness check presented in Figure 13 specifically examines the mean and median
number of CAPEX suppliers for ZTE, differentiating between collaborative and transactional
buyer-supplier relationships. In the collaborative category, the mean number of suppliers for
ZTE customers demonstrated an increase from 14.9 in the pre-event period to 18.2 in the post-
event period, indicating a rise in the supplier base. The median number of suppliers in this
category also saw a substantial increase from 21.4 to 49.0. This suggests that, on average, ZTE
customers tend to engage with a higher number of suppliers in collaborative relationships post-
event, not supporting the hypothesis that collaborative relationships are associated with a more
stable supply base.
Figure 13
Robustness Check of CAPEX Suppliers for ZTE Customers
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Conversely, within the transactional category for ZTE customers, the mean number of
suppliers experienced a decrease from 19.9 in the pre-event period to 18.0 in the post-event
period. The median number of suppliers remained relatively stable, with an increase from 29.3 to
49.9. These findings indicate that, in the context of transactional relationships for ZTE, there was
a trend toward a reduced supplier base post-event.
In summary, Figure 13 provides a robustness check specifically focusing on the mean and
median number of CAPEX suppliers for ZTE customers, categorized by collaborative and
transactional buyer-supplier relationships. In Figure 13, within the collaborative category for
ZTE customers, both the mean and median number of suppliers increase post-event, indicating a
rise in the supplier base. Conversely, the transactional category for ZTE customers shows a
decrease in the mean number of suppliers post-event, with relatively stable median numbers.
Comparing with the earlier analysis that analyzed CAPEX suppliers for customers of
both ZTE and Hikvision, some similarities and differences emerge. Figure 13 indicated a trend
toward increased supplier numbers in collaborative relationships for ZTE customers, which was
not observed in the joint analysis. Conversely, both analyses showed a decline in supplier
numbers for transactional relationships, although Figure 13 specifically highlighted this trend for
ZTE customers.
H3b Robustness Checks
Hypothesis H3b analyzed if customers of firms targeted by trade actions engaged in
collaborative supplier relationships, they would be less likely to increase the domestic
concentration of their supply base. Therefore, a robustness check for H3b was conducted to
validate the findings presented in the primary analysis and ensure the reliability and consistency
of the results.
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Table 17 and Figure 14 provides a robustness check, comparing the percentage of
Chinese and US COGS suppliers for Hikvision's transactional and collaborative customers
during pre-event and post-event periods. The analysis focuses solely on COGS numbers, as there
was insufficient data to report on other metrics.
Table 17
Robustness Check of All COGS Suppliers for Hikvision
Figure 14
Robustness Check of All COGS Suppliers for Hikvision, Graph
Table 17 and Figure 14 demonstrate that for US COGS suppliers, transactional customers
showed a slight decrease in the percentage of US suppliers (-0.5%). Collaborative customers
experienced a significant increase in the percentage of US suppliers (+6.1%). The net difference
between the changes for transactional and collaborative customers is -6.7%, indicating that
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collaborative customers increased their domestic concentration of US suppliers significantly
more than transactional customers. In contrast, for Chinese COGS Suppliers transactional
customers saw a substantial decrease in the percentage of Chinese suppliers (-10.7%).
Collaborative customers experienced a very slight decrease in the percentage of Chinese
suppliers (-0.2%). The net difference between the changes for transactional and collaborative
customers is -10.4%, suggesting that transactional customers reduced their reliance on Chinese
suppliers much more significantly than collaborative customers.
Surprisingly, the data from the robustness check provides more support for H3b than the
main analysis by showing that collaborative versus transactional relationships have somewhat
differing effects on changes in domestic suppliers. Specifically, collaborative customers
increased their percentage of US suppliers more than transactional customers, implying a shift
towards domestic suppliers suggesting strategic stability. Collaborative customers maintained a
more stable percentage of Chinese suppliers compared to transactional customers, who
significantly reduced their reliance on Chinese suppliers. This stability aligns with the hypothesis
that collaborative relationships mitigate the impact of trade actions on supply base concentration.
In summary, the analysis from Table 17 supports the notion that collaborative
relationships contribute to a more balanced and stable supply base, consistent with hypothesis
H3b. However, in comparing the original data there is contrasting evidence, indicating no
substantial impact of collaboration on altering domestic supply base concentration. These
discrepancies underscore the need for further research to better understand the nuanced dynamics
of buyer-supplier relationships and their implications for supply chain management strategies in
the context of evolving trade dynamics.
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Table 18 and Figure 15 provide a robustness check for a comparison of percentage of
Chinese and US COGS suppliers for ZTE customers for transactional and collaborative
customers in the pre-event and post-event periods. Post-event and pre-event period consist of
three years each. Table 18 reveals distinct patterns in supplier composition changes for
transactional and collaborative customers. For US COGS suppliers, transactional customers
showed a slight increase (+0.6%) in the post-event period, while collaborative customers
experienced a notable decrease (-5.0%). The net difference between transactional and
collaborative customers indicates a significant preference for domestic suppliers among
transactional customers. Similarly, for Chinese COGS suppliers, transactional customers
demonstrated a substantial increase (+4.4%) in the post-event period, whereas collaborative
customers exhibited a marginal increase (+0.4%). The net difference suggests that transactional
customers significantly increased their reliance on Chinese suppliers compared to collaborative
customers. Regarding US CAPEX suppliers, both transactional and collaborative customers
showed increases in the post-event period, with collaborative customers exhibiting a slightly
higher increase (+4.7%). However, for Chinese CAPEX suppliers, both customer types exhibited
similar increases in the post-event period, with transactional customers showing a slightly lower
increase (-0.5%) compared to collaborative customers.
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Table 18
Robustness Check of All COGS and CAPEX Suppliers for ZTE
Figure 15
Robustness Check of All COGS Suppliers for ZTE, Graph
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Overall, the robustness check presented in Table 18 and Figure 15 reinforces the findings
from the previous robustness check, indicating that transactional and collaborative relationships
have distinct impacts on supplier engagement strategies. Transactional customers tend to prefer
domestic suppliers, especially for COGS, while collaborative customers demonstrate a more
balanced approach with a lesser reliance on Chinese suppliers. These insights contribute to a
deeper understanding of buyer-supplier dynamics and highlight the importance of considering
the nature of relationships in supply chain management strategies.
The analysis demonstrates that Table 18 supports Hypothesis H3b by highlighting the
importance of collaborative relationships in promoting a more balanced and stable supply base,
whereas an earlier analysis presents contrasting findings, suggesting that collaboration may not
have a significant impact on altering the domestic concentration of the supply base.
Results, Conclusion, and Discussion
In conclusion, I examined the data and the analysis provides valuable insights into the
dynamics of supplier relationships in the context of firms targeted by trade actions, particularly
focusing on supply base size, changes in supply base composition, and the moderating effects of
collaborative versus transactional buyer-supplier relationships. Given the number of analyses and
robustness checks conducted to test the hypotheses, Table 19 summarizes the results.
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Table 19
Summary of Hypothesis Testing Results
Addressing H1, based on the analysis conducted and the insights collected from the
findings, there is substantial alignment between the results and existing literature on supplier
relationship dynamics in response to external trade pressures. The literature suggests that firms
facing trade actions often seek to diversify their supplier base to mitigate risks associated with
disruptions in the supply chain. These findings, particularly regarding H1, support this notion.
The observed increase in the median number of suppliers, especially in the context of COGS, is
consistent with the literature's expectation that firms would expand their supplier base in
response to trade actions to enhance resilience and flexibility in their supply chains.
Furthermore, the variations in the significance and magnitude of the increase across
different subsamples, as evidenced in the analysis, resonate with the nuanced strategies that firms
may adopt in response to external trade pressures. This aligns with literature highlighting the
heterogeneity in firms' responses to trade actions, influenced by factors such as industry
characteristics, firm size, and market dynamics.
Main Analysis Robustness Check
H1.
Customers of firms targeted by trade actions will
expand their supply base (i.e., increase their
number of suppliers).
Supported. Results stronger for
COGS suppliers than CAPEX
suppliers.
Supported. Results stronger for
COGS suppliers than CAPEX
suppliers.
H2.
Trade actions will prompt customers of targeted
firms to increase the concentration of their supply
base in the targeting country.
Partially supported. Some
decreases in Chinese COGS
suppliers and some increases in US
COGS suppliers.
Mixed results. Both increases and
decreases in Chinese COGS
suppliers. No significant changes in
US suppliers.
H3a.
If customers of firms targeted by trade actions
engage in collaborative supplier relationships, they
will be less likely to expand their supply base.
Supported for COGS suppliers. Not
supported for CAPEX suppliers.
Supported for COGS suppliers;
same pattern holds for both ZTE
and Hikvision. Not supported for
CAPEX suppliers.
H3b.
If customers of firms targeted by trade actions
engage in collaborative supplier relationships, they
will be less likely to increase the concentration of
their supply base in the targeting country.
Not supported. Not supported.
Hypothesis
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Regarding H2, the analysis does not support the notion that trade actions prompt
customers of targeted firms to increase the concentration of their supply base in the targeting
country. This is not consistent with the literature on supply chain dynamics in response to
geopolitical risks and trade disruptions as increases in US suppliers were significantly small or
nonexistent. Additionally, stronger results for Chinese suppliers was discovered.
Moreover, the findings regarding the moderating effects of collaborative versus
transactional buyer-supplier relationships (H3a) also contribute to the existing literature on
supply chain management. The empirical evidence supporting the role of collaborative
relationships in moderating supplier base changes aligns with prior research emphasizing the
importance of collaborative partnerships in enhancing supply chain resilience and agility.
Overall, the findings from the analysis provide empirical support for the insights gleaned
from existing literature on supplier relationship dynamics in the context of trade actions. They
underscore the importance of proactive supply chain management strategies, including supplier
diversification and collaboration, in navigating the complexities of global trade uncertainties.
The notable shifts observed in supplier composition, particularly the increase in the mean
percentage of Chinese suppliers, suggest that customers of targeted firms are indeed adjusting
their supply base in response to trade actions. This increase in the concentration of Chinese
suppliers indicates a strategic shift to the targeted country (China) and away from the targeting
country (US), likely driven by various factors such as cost considerations, geopolitical risks, and
trade policy uncertainties. The findings imply that firms facing trade actions may prioritize
suppliers from the targeting country to mitigate risks associated with trade disruptions and ensure
supply chain resilience. By increasing the concentration of their supply base in the targeting
country, firms may seek to minimize exposure to tariffs, sanctions, or other trade restrictions
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imposed on suppliers from other countries. Furthermore, the observed shifts in supplier
composition reflect the dynamic nature of supply chains and the need for firms to adapt to
changing geopolitical and trade environments. The literature on supply chain management
emphasizes the importance of risk mitigation strategies and supplier diversification to address
disruptions caused by trade actions and other external factors.
Overall, the findings support H2 and underscore the strategic response of customers of
targeted firms to trade actions, highlighting the role of supply chain adaptation in navigating
geopolitical uncertainties and ensuring business continuity.
For H3, the study investigates the moderating effects of collaborative versus transactional
buyer-supplier relationships on changes in COGS in response to trade actions. For H3a and H3b,
the results offer mixed support for the hypotheses. While the findings indicate that customers
engaged in collaborative buyer-supplier relationships are less likely to significantly expand their
supply base and less inclined to increase the domestic concentration of their supply base
compared to those in transactional relationships, it is important to note that the observed patterns
may not fully align with the initial expectations outlined in the hypotheses.
Specifically for H3b, the original analysis and the subsequent robustness check provide
mixed support. This suggests that customers engaged in collaborative supplier relationships are
less likely to increase the domestic concentration of their supply base. While the original analysis
indicates that collaborative relationships indeed contribute to a more balanced and stable supply
base, the robustness check offers further reinforcement to this notion. However, another
comparison suggests a lack of significant differentiation in supplier engagement behaviors
between collaborative and transactional customers, challenging the validity of H3b in this
context. Thus, while there is evidence supporting H3b in certain aspects of the analysis, the
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mixed findings underscore the need for further research to fully understand the nuanced effects
of collaborative buyer-supplier relationships on supply base concentration.
The literature generally supports the notion that collaborative buyer-supplier relationships
foster stability and resilience in supply chains. However, the findings suggest that the impact of
these relationships on supply base dynamics in response to trade actions may be more nuanced
than anticipated. While collaborative relationships are often associated with a more diverse and
resilient supply base, the results indicate that they do not necessarily inhibit changes in supplier
composition or concentration as hypothesized.
This deviation from the expected outcomes underscores the complexity of supply chain
management in the context of geopolitical and trade uncertainties. The findings highlight the
need for a more comprehensive understanding of the factors influencing supply base dynamics
and the moderating effects of buyer-supplier relationships. While collaborative relationships play
a crucial role in enhancing supply chain resilience, their influence on supplier base changes may
be contingent upon various contextual factors and strategic considerations, as evidenced by the
nuanced findings of this study.
Theoretical Contributions
This study contributes to the existing body of literature by providing empirical evidence
that supports and extends theoretical frameworks outlined in previous research. By investigating
the implications of trade actions on supply chain dynamics, our findings align with the
literature's emphasis on the disruptive nature of geopolitical uncertainties and trade actions
(Kleindorfer & Saad, 2005; Knemeyer et al., 2009; Wagner & Bode, 2008). Our study confirms
that trade wars, characterized by regulatory changes, tariffs, and other policy tools, indeed exert
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profound effects on supply chains, causing operational and financial challenges for organizations
(Jacobs et al., 2022; Sodhi et al., 2012).
Furthermore, this research supports the literature's recognition of the complexities within
supply chain networks and the challenges associated with managing uncertainty (Cheng et al.,
2014). The strategies proposed by Galbraith (1973) for managing uncertainty, such as creating
slack resources and enhancing information processing capacity, are validated by the empirical
findings as I observed firms adopting similar approaches in response to trade disruptions
(Braunscheidel & Suresh, 2009).
Moreover, this study provides empirical support for the literature's emphasis on the role
of market forces and industrial conditions in shaping firms' supply chain strategies (Gao et al.,
2015). By exploring how firms navigate supplier relationships and supply base dynamics in
response to trade actions, I corroborated the literature's insights into the challenges of recovering
from disruptions and the complexities of global supply chains compared to domestic ones
(Hendricks & Singhal, 2005; Manuj & Mentzer, 2008).
Overall, this research not only validates existing theoretical frameworks, but also extends
them by offering practical insights into the strategies and behaviors observed in real-world
supply chain management amidst geopolitical uncertainties and trade disruptions.
Practical Implications
The empirical findings of this study hold substantial practical implications for firms
navigating the complex terrain of global supply chain management, particularly in the context of
trade wars and geopolitical uncertainties. The practical contributions of the research are
multifaceted, offering actionable insights for supply chain practitioners, policymakers, and
industry stakeholders.
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First and foremost, the study's insights into supply base dynamics provide practical
guidance for firms facing disruptions triggered by trade actions. The observed tendency of
customers to expand their supply base in response to trade actions underscores the importance of
agility and adaptability in supplier relationships. Supply chain practitioners can leverage these
findings to develop strategies that mitigate the impact of disruptions, emphasizing the need for a
diversified and resilient supplier portfolio. This diversification strategy aligns with practical risk
management approaches, allowing firms to better navigate uncertainties introduced by
geopolitical factors.
The emphasis on domestic concentration as a strategic response to trade actions carries
practical significance for firms operating in a global context. Supply chain professionals can
draw on this insight to reevaluate and potentially recalibrate their supplier networks. The
strategic shift toward domestic suppliers, as evidenced by the empirical results, aligns with risk
mitigation efforts, providing a practical roadmap for firms seeking to enhance their supply chain
resilience. This recalibration may involve fostering stronger relationships with local suppliers,
investing in domestic capabilities, and strategically repositioning sourcing strategies to reduce
exposure to global disruptions.
Limitations
While the data analysis has provided meaningful insights into the dynamics of supplier
relationships in the context of firms targeted by trade actions, it is essential to acknowledge
several limitations inherent in the study. First, the two firm sample size is small, intended merely
as a proof of concept and a preliminary investigation. The sample size is a limitation in the data
being analyzed, resulting in low power and potential challenges to any statistical significance.
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Second, the analysis relies on quantitative data and, as such, it may not capture the full
spectrum of factors influencing supplier relationships. Qualitative data, such as interviews or
surveys, could offer a more in-depth understanding of the motivations and decision-making
processes of firms in response to trade actions.
Third, the study focuses on a single specific industry, namely IT hardware and
semiconductor. Consequently, the generalizability of the findings to other industries or contexts
may be limited. Future research could explore a more diverse range of industries to enhance the
external validity of the results.
Additionally, the study assumes a linear relationship between trade actions and changes
in the supplier base. However, the impact of trade actions on supplier relationships may be
nonlinear and contingent on various contextual factors. Exploring these contextual nuances could
provide a more comprehensive understanding of the intricate dynamics at play.
The temporal scope of the study is another limitation. While it examines the pre-event
and post-event periods, the dynamics of supplier relationships may evolve over more extended
periods. Future research could employ a more extended time frame to capture the longer-term
effects of trade actions on supply chain dynamics.
Despite these limitations, the study contributes valuable insights to the field of supply
chain management, particularly in the context of geopolitical and trade uncertainties.
Recognizing these limitations provides a foundation for future research endeavors to build upon
and refine our understanding of the multifaceted relationships between trade actions, buyer-
supplier engagements, and supply base dynamics.
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CHAPTER 5: CONCLUSION
The primary objective of this research was to identify strategies employed by supply
chain organizations to mitigate changes and uncertainties in trade policy. A comprehensive
overview of key theories, concepts, and ideas contributing to this area of study was provided,
aiming to enhance understanding of the impact of trade actions on supply chain management
practices. While data collection revealed valuable insights into the sources and magnitude of
risk, as well as the threat of disruption in supply chains, there remains an opportunity to explore
the direct influence of external factors on supply chain management practices. Notably, the
impact of trade actions on supply chain management firms has not been extensively studied,
representing an avenue for further investigation.
In this research I delved into the intricate relationship between trade actions and supply
chain management, aiming to provide nuanced insights into how supply chain managers navigate
trade disruptions and the ensuing implications for firms in both targeting and target countries.
Through meticulous investigation and analysis, I addressed a series of research questions across
two distinct research papers, offering a comprehensive understanding of the multifaceted
challenges and opportunities inherent in trade actions within the realm of supply chain dynamics.
The first paper (Chapter 3) focused on understanding supply chain manager perspectives
on trade actions, addressing the following research questions:
• RQ1: How do supply chain managers prioritize trade actions relative to other
types of supply chain disruptions?
• RQ2: What factors or conditions lead companies to make/not make changes to
their supply base following a trade action?
• RQ3: What sourcing strategies are top-of-mind to mitigate trade actions?
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The findings provided valuable insights into these research questions. First, the analysis
revealed that supply chain managers prioritize trade actions based on their potential impact on
the business, considering factors such as the degree of impact and severity of disruption. This
finding highlights the complex decision-making processes involved in managing supply chain
disruptions and underscores the need for a holistic approach to risk assessment.
Second, I identified various factors driving changes to the supply base following a trade
action, including tariff influences, market shifts, trade issues, quality and delivery concerns, and
ethical considerations. These factors illustrate the multifaceted nature of supply chain decision-
making and emphasize the importance of considering diverse perspectives and stakeholders in
strategic planning.
Last, the analysis uncovered a diverse set of sourcing strategies employed by supply
chain managers to mitigate the impacts of trade actions. These strategies included adjusting
sourcing strategies, fostering collaborative partnerships with suppliers, diversifying the supply
base, and prioritizing ethical sourcing practices. By elucidating these strategies, the findings
offer practical insights for organizations seeking to enhance their supply chain resilience amidst
trade disruptions.
Building on the first paper, the second paper (Chapter 4) focused on examining the
effects of trade actions on supply base changes, addressing the following research questions:
• RQ1: Do customers of firms targeted by trade actions make significant changes to
their supply base?
• RQ2: Do changes in the supply base create advantages or disadvantages to firms
in (a) the targeting country (e.g., United States targeting China) or (b) the target
country (e.g., China targeted by United States)?
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Through rigorous data analysis, I found compelling evidence that firms targeted by trade
actions do indeed make significant changes to their supply base. These changes are driven by
various factors such as tariff influences, market shifts, and geopolitical considerations,
highlighting the dynamic nature of supply chain adjustments in response to trade disruptions.
Furthermore, the analysis revealed that changes in the supply base can create both
advantages and disadvantages for firms in both the targeting and target countries. Firms in the
targeting country may experience advantages such as increased domestic sourcing, while also
facing disadvantages such as higher production costs. Conversely, firms in the target country
may experience disadvantages such as reduced market access, while benefiting from potential
opportunities to diversify their customer base.
By addressing these research questions across two distinct research papers, I provided a
comprehensive understanding of the impact of trade actions on supply chain management. The
findings underscore the importance of agility, adaptability, and strategic foresight in navigating trade
disruptions effectively. Supply chain managers must carefully assess the potential impacts of trade
actions on their business operations and proactively adjust their sourcing strategies and supply base
accordingly. Additionally, policymakers and industry stakeholders should consider the broader
implications of trade actions on global supply chains and work towards fostering an environment
conducive to sustainable and resilient supply chain practices.
While the analysis provides valuable insights, further elaboration and detail can enhance the
depth and richness of the findings. A more nuanced exploration of specific sourcing strategies,
geopolitical factors, and stakeholder perspectives can offer practical guidance for practitioners and
policymakers alike. By continuing to investigate these complex dynamics, we can contribute to the
ongoing discourse on trade actions and supply chain management, ultimately fostering more resilient
and sustainable supply chains in an increasingly interconnected world.
