Assessing long-term country-specific sourcing risk using J-Curve Openness-Stability Analysis

In managing many technologies, supply-chain sourcing accounts for a large share of the total cost of goods sold (COGS) that drives the competitive advantage of a multinational enterprise (MNE). To gain significant COGS advantages in the short-term, many technology-intensive MNEs collaborate some parts of their value-adding activities with the developing and emerging economies that offer low wages and large labor pools. These low-cost countries, however, have some hidden long-term sourcing risks as well. Until recently, there has been nascent research and no comprehensive models available for assessing such long-term sourcing risks. Many prior studies on modeling supply-chain risk implicitly assume global convergence rather than exploring national specificity, though supply-chain managers are increasingly concerned with country-specific risks [19]. This study, therefore, fills an important gap in research literature, by applying Ian Bremmer's J-Curve Openness-Stability model [1] to two illustrative applications: (A) sourcing from a low cost country such as India, and others, and (B) sourcing of oil and gas from the Middle East. An additional contribution was made with an innovative way to qualitatively assess long-term sourcing risk for BRIC (Brazil, Russia, India and China) countries and 8 low cost countries, relative to the U.S. In conclusion, research limitations are reviewed and some managerial and policy implications are proposed.