Spillover effects of customers' geographic diversification on suppliers' operational performance: impacts and mechanisms

Purpose The purpose of this study is to investigate how customers' geographic diversification (GD) affects their suppliers' operational performance and the underlying mechanisms. This study also examines two boundary conditions on the relationship, namely the divergence of GD between suppliers and customers and the suppliers' research and development intensity. Design/methodology/approach This study integrates public data from multiple sources containing information about customer-supplier relationships, firms' country-level sales and operational performance. As a result, we have a final sample comprising 264 unique customers, 501 unique suppliers and 3,255 customer-supplier-year observations covering the period from 2010 to 2019. We adopt fixed effects regression and validate the results through various robust checks. Findings Our results show that the extent of customers' GD positively influences suppliers' operational performance. Furthermore, we find that the improved suppliers' performance is driven by increased sales revenue, reduced sales volatility and enhanced knowledge repertoire. Finally, heterogeneity analyses indicate that the positive effect is more pronounced when (1) suppliers' GD is more divergent from that of customers and (2) suppliers have higher research and development intensity. Originality/value The study contributes to the diversification literature by extending the understanding of the consequences of firms' GD from the firm level to the supply chain level. It also complements the existing supply chain spillover literature by identifying the effect of customers' GD on suppliers, mechanisms and boundary conditions.