Sourcing from Multinational Suppliers to Overcome Weak Contracting Institutions and Gain Supply Chain Capabilities

Abstract This paper examines whether firms choose to source from multinational (MNC) suppliers instead of local suppliers as a means of overcoming weak contract enforcement institutions and as a means of accessing supply chain management capabilities. It uses a unique dataset of international contract manufacturing orders constituting the global supply chains of many of the world’s largest brands in footwear, sportswear, and apparel. It finds strong evidence that buyers are more likely to source from MNC suppliers in countries where contract enforcement is weak and when they have less experience sourcing from a given country. Further, it finds evidence that buyers are more likely to source from MNC suppliers when they source a wider variety of products, have smaller supplier networks, or have smaller order volumes.