The apparel supply chain today is characterized by high level of operational, economic, and financial globalization. Due to multi-country presence, the apparel supply chain is exposed to numerous risks related to supply, demand, and other internal as well external factors such as human resource risks, trade barriers, financial regulations, lack of institutional remedies in some developing and least developed markets. Traditionally, most of the apparel product buyers and suppliers have focused on competing on conventional factors related to product designing, profit optimization through pursuit of low-cost manufacturing, devising strategies for circular economy with least possible environmental impact, harnessing the power of information technology and automation for efficiency improvement etc. However, in the last few years, the modern geopolitical environment has undergone an evolutionary change as the major economies are jockeying to establish themselves as a key power in global platforms.
The National Intelligence Council’s Global Trends 2040 report[i] published in 2021 predicts that the geopolitical environment is expected to become more competitive in future. Brexit, US tariffs on imports from the European Union, the China- USA trade war, the Japan-South Korea trade dispute, the Ukraine-Russia war are some of the recent examples of geopolitical risk hovering on global supply chains. Like any other global supply chains, the apparel supply chain is vulnerable to disruptions and stress fuelled by increasing geopolitical crisis. As the geopolitical competition intensifies, brands and retailers are expected to concentrate more on tackling new challenges related to country-specific discriminatory rules and norms with the potential to impact competitiveness of countries and change sourcing landscape. Country-specific discriminatory rules and norms are expected to penetrate new areas related to data security and threat, tax and profit repatriation, information sharing etc. Managing such risks creates contradictory priorities and choices for supply chain players. For example, on one hand they must continue to invest on digital supply chain and on the other there is a strong need to ensure that the supply chain does not become vulnerable to risks emerging from modern digital battle ground and data security threat emerging from it.
The existing literature on supply chain risks highlight several supply-side, demand-side and business context related risks that have potential to disrupt the supply chains. Academicians and researchers have investigated various supply chain related risks and have suggested conceptual and empirical models for risk management and impact of such risks. The areas of focus in recent times have been supply chain risk management through critical material assessment (Mouloudi, 2022)[ii], logistic service provider performance improvement (Hohenstein,2022)[iii], supply chain risk communication (Geng, 2022)[iv], supply chain risk mitigation strategies (Kraude, 2022)[v], optimal sourcing decision considering demand-side, supply-side and background risk (Mukherjee, 2022)[vi] etc. The existing literature lack focus on geopolitical risk and its implication on supply chain and sourcing decisions. Most of the literature on geopolitical risk is either concentrated on commodities or considers geopolitical risk as one of the of supply chain risks and discussed along with other risk areas. There is limited literature that discuss impact of geopolitical risk on interconnected global supply chains like the apparel supply chain.
Researchers on risk management in supply chain have emphasised that the conventional methods of theorizing, researching, and managing supply chain risks are no longer effective considering the rise of extreme geopolitical conflicts. For a meaningful contribution, academicians and research scholars must internalize a “business-not-as-usual” approach to their work (Knight, 2022)[i]. There are a broad range of researchers who suggest alternative concepts for economy and supply chain which could be combined under business-not-as-usual approaches. These alternative concepts are regenerative economics and business (Svenfelt, 2019[ii]; Hahn, 2021[iii]; Raworth, 2017[iv]), survival or flourishing (Figueres, 2020[v]; Krznaric, 2020[vi]), focus on building a better world through focusing on value (Carney, 2021)[vii].
Recently, both buyers and suppliers in global supply chains are witnessing “extreme” or “business-not-as-usual” context due to climate focus, biodiversity, global pandemics, or geopolitical risk like war (Sodhi 2021[viii]). Therefore, it is imperative for the supply chain discipline to rethink on how to cope with such conditions, now and in the future. Researchers have demonstrated that crude oil security is significantly impacted by geopolitical risk and requires diversified strategies to manage them (Wang 2021[ix]). The negative surprises of geopolitical risk lead to higher effects on changes in probabilities related to oil volatility than positive surprises (Wang 2021[x]). As a response to geopolitical risk shipping firms lower their financial leverage (Kotcharin, 2020[xi]) and increase their cash reserve (Kotcharin, 2020[xii]). Increased geopolitical risk decreases stock returns, the decrease is greater for large firms and firms with a higher fixed asset ratio (Jung, 2021[xiii]).
Evidence from pharmaceutical industry and Brexit revel that multi-national enterprises (MNEs) adopt “wait-and-watch” strategy in combination of worst-case assumptions in case of heightened geopolitical risk (Roscoe, 2020[xiv]). Faced with increased risk causing from factors related to supplier delays, natural calamity, geopolitical instability etc. manufacturers concentrate on critical tasks like assigning of resources, real-time monitoring of risk, sharing responsibilities related to risk management (Hsu 2020[xv]). An increase in geopolitical risk slows down technological innovation output and the impact of geopolitical threats (unrealised risk) is more detrimental than geopolitical acts (realised risk)[xvi].
Availability of literature on impact geopolitical risk on sourcing strategy in global supply chain, especially in consumer goods supply chain like apparel is a and requires investigation.
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[ii] Svenfelt, Å., Alfredsson, E.C., Bradley, K., Faur´e, E., Finnveden, G., Fuehrer, P., Gunnarsson-¨Ostling, U., Isaksson, K., Malmaeus, M., Malmqvist, T., 2019. Scenarios for sustainable futures beyond GDP growth 2050. Futures 111, 1–14.
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[iv] Raworth, K., 2017. Doughnut Economics: Seven Ways to Think like a 21st-Century Economist.
[v] Figueres, C., Rivett-Carnac, T., 2020. The Future We Choose: Surviving the Climate Crisis. Manila Press, London.
[vi] Krznaric, R., 2020. The Good Ancestor: How to Think Long Term in a Short-Term World. WH Allen, London.
[vii] Carney, M. (2021). Value (s): Building a better world for all. Public Affairs.
[viii] Sodhi, M. S., & Tang, C. S. (2021). Supply chain management for extreme conditions: research opportunities. Journal of Supply Chain Management, 57(1), 7-16.
[ix] Wang, K. H., Su, C. W., & Umar, M. (2021). Geopolitical risk and crude oil security: A Chinese perspective. Energy, 219, 119555.
[x] Wang, L., Ma, F., Hao, J., & Gao, X. (2021). Forecasting crude oil volatility with geopolitical risk: Do time-varying switching probabilities play a role?. International Review of Financial Analysis, 76, 101756.
[xi] Kotcharin, S., & Maneenop, S. (2020). Geopolitical risk and shipping firms’ capital structure decisions in Belt and Road Initiative countries. International Journal of Logistics Research and Applications, 23(6), 544-560.
[xii] Kotcharin, S., & Maneenop, S. (2020). Geopolitical risk and corporate cash holdings in the shipping industry. Transportation Research Part E: Logistics and Transportation Review, 136, 101862.
[xiii] Jung, S., Lee, J., & Lee, S. (2021). The impact of geopolitical risk on stock returns: Evidence from inter-Korea geopolitics. IMF Working Papers, 2021(251).
[xiv] Roscoe, S., Skipworth, H., Aktas, E., & Habib, F. (2020). Managing supply chain uncertainty arising from geopolitical disruptions: evidence from the pharmaceutical industry and brexit. International Journal of Operations & Production Management.
[xv] Hsu, C. H., Chang, A. Y., Zhang, T. Y., Lin, W. D., & Liu, W. L. (2021). Deploying resilience enablers to mitigate risks in sustainable apparel supply chains. Sustainability, 13(5), 2943.
[xvi] Astvansh, V. (2022). Does Geopolitical Risk Stifle Technological Innovation?. Available at SSRN.
