What criteria do global companies rely on to choose the best supplier in a country? Four researchers – including NEOMA’s Antony Paulraj, Aneesh Datar and Azusa Nakamura – set out to answer this question by studying the influence of three sociopolitical indicators on the decisions of over 1,300 US firms. Their analysis reveals a trend: companies frequently cut back on suppliers in states led by populist leaders and in those showing signs of fragility.

The geographical location of suppliers is a constant concern for companies with a global reach. Why? Because geopolitical events, trade wars and domestic political upheavals are all sources of uncertainty: Can our supplier guarantee their prices and production volumes? Are they likely to face regulatory changes? Is there a chance they won’t be able to deliver one day?

Investigating the impact of sociopolitical factors: a vital area of research

Samsung, for example, has shifted away from its Chinese suppliers in recent years, focusing instead on India and Vietnam. GoPro has travelled the same road, quitting China for Taiwan, Mexico and Malaysia. H&M, Zara and Uniqlo have deserted Bangladesh, once an “El Dorado” for the textile industry, because of its overly hostile political climate. In short, supply chains are in a state of continuous evolution.

The impact of socio-political factors on this ever-changing landscape has been under-explored by researchers. The study by four authors – including NEOMA’s Antony Paulraj, Aneesh Datar and Azusa Nakamura – helps to fill this gap. The article targeted 1,336 US-listed multinationals and their suppliers in 87 countries between 2003 and 2018.

The scientists measured whether the number of suppliers for each company in each country grew or fell over this 15-year period. These trends were then correlated with three criteria on a country-by-country basis: Is the head of state representative of a populist movement? Does the country’s governance show signs of fragility that are detrimental to its economic activity? Do the country’s institutions provide a genuine system of checks and balances against the potential excesses of the current leadership?

A barometer of populism: the rhetoric of the head of state

The researchers used indicators designed and recognised by the scientific community to quantify these three criteria. They evaluated populism using figures from the Global Populism Database, whose methodology is considered authoritative. This dataset draws on an in-depth semantic analysis of key speeches delivered by a country’s leader.

To quantify a country’s vulnerability, the authors turned to the State Fragility Index, which is widely used in the world of business. The SFI assigns each country a score based on indicators across four categories: its legitimacy and effectiveness in tackling the dangers of corruption, mafia-like behaviour, non-compliance with laws, etc.; the safety of citizens regarding crime, violence, border permeability, etc.; the pertinence of social policies in education, health and poverty alleviation; and the country’s vulnerability in terms of inflation, the balance of public accounts and the stability of the national currency.

The authors employed a third indicator well-known in international trade, the Political Constraint Index, to determine the robustness of existing checks and balances. The PCI weighs up the effectiveness of a range of safeguards, including the separation of powers, the existence of regulatory authorities with the right of veto (such as the Constitutional Council in France), and the legal mechanisms that enable opposition members to obstruct certain actions.

Populism drives businesses away regardless of checks and balances

Three conclusions emerge from the article. First, when a populist government comes to power, US companies cut the number of partner suppliers in that country. This is most likely due to their fear that there will be an escalation in uncertainty, which aligns with the core principles of populist movements as described by numerous researchers: abrupt challenges to existing policies and rules, a lack of convincing answers to major social problems, anti-globalisation rhetoric, and so forth.

The second lesson: these American firms also withdraw from countries that are considered too fragile. The failure to enforce certain laws, coupled with insecurity, ineffective social policies and a weak economy create an unfavourable business climate. In the worst-case scenario, it may jeopardise the very pillars of state – property rights, contract validity and infrastructure availability (roads, telecommunications, etc.) – resulting in a substantial rise in “country risk”.

Thirdly, while a system of checks and balances alleviates the adverse effects of these fragilities on the number of suppliers, it is ineffective against populism: US companies pull out of populist countries, including from states with robust institutions. The authors explain that the ability of populist leaders to mobilise public opinion, allied to their determination to remain in power for as long as possible, means they can override institutional safeguards and enforce their own rules.

The case for geopolitical advisors

The researchers recommend that supply chain managers should re-evaluate the country risk of their suppliers based on an in-depth socio-political analysis. Monitoring a country’s domestic affairs from afar is no longer effective: companies need to scrutinise their daily functioning closely, potentially by hiring geopolitical advisors or calling on specialised consultants.

“Even though our data stops in 2018, we can extrapolate the results and presume that the same mechanism is still at work in the global context of 2025”, says Antony Paulraj, one of the study’s authors. “Major contractors reduce the number of suppliers in states with populist regimes”.

Find out more

PAULRAJ, Antony, NAKAMURA Azusa, DATAR Aneesh. Navigating sociopolitical waters: exploring the influence of key factors on global supply base concentration. International Journal of Operations & Production Management. https://www.emerald.com/insight/content/doi/10.1108/ijopm-03-2024-0260/full/html