Global Sourcing for Supply Resilience in the Presence of Emergency Contract Renegotiation

Abstract

In light of the recent frequency of global emergencies that result in overseas delivery delays and cost surges, many multinational brands consider reshaping their sourcing configurations by incorporating local suppliers that may be of lower quality than globally selected counterparts. In this global context, pre-committed emergency renegotiation clauses have gained recognition as a common practice in international commercial contracts, which enable contractual parties to adjust key terms, such as the wholesale price and order quantity, during ex-post emergencies. This work aims to investigate how the presence of overseas emergency renegotiation affects the brand’s strategy preference for dual versus single sourcing and the decision-making of supply chain parties. By comparing with two widely observed benchmark scenarios—contract termination and contract continuation at post-recovery cost—that exclude overseas emergency renegotiation, we show that in the presence of emergency renegotiation, the overseas supplier under both sourcing strategies may lower its wholesale price for the brand in response to a higher delay probability, which would not be the case in the contract termination benchmark. This price-cutting effect encourages the brand to order more from the overseas supplier, even if the delay probability is high. Furthermore, the brand favors dual sourcing if the overseas post-recovery unit cost is either low or high, driven by a distinct incentive under renegotiation: the local supplier may suppress the local rival by setting a high wholesale price, a scenario not possible in the contract continuation benchmark. Our study highlights the value of emergency contract renegotiation in reshaping resilient sourcing strategies for multinational brands facing global emergencies, even with ex-post local reorder or overseas quality deterioration during recovery.