The impact of supply base geographical distance and dispersion on product quality risks: Evidence from the Chinese automobile industry

Abstract

Prior research on supply chain geographical complexity has predominantly treated geographical distance and geographical dispersion as interchangeable concepts. Further, nearly all empirical studies examining supply chain antecedents of product quality risks used samples from Western, educated, industrialized, rich, and democratic (WEIRD) countries. To improve the theoretical and practical insights from this stream of research, we theorize that, particularly for manufacturers in emerging markets, supply base geographical distance and dispersion affect product quality risks through monitoring and coordination challenges, respectively. Analyzing data from the Chinese automobile industry, we find that the geographical distance of firms from their supply base is not significantly related to automobile quality risks, but geographical dispersion is significantly and positively associated. In line with our arguments, we found that the relationship between geographical distance and quality risk is weakened when firms source from suppliers located in countries with strong regulatory quality, and that the positive relationship between geographical dispersion and quality risks is weakened by supplier quality certifications. Taken together, our findings provide a nuanced understanding of the relationship between supply chain geographical complexity and product quality risks, which leads to new theoretical and practical insights relevant for non-WEIRD countries.