Managing Supply Risks for Low-cost Country Sourcing: The Mediating Role of Purchasing Teams and Implications for Firm Performance

Drawing on agency theory and using a combination of a survey of large U.S. firms and archival data, this research examines how low-cost country sourcing and supply risk (supplier operations risk and market risk) impact the use of purchasing teams and affect firm performance. Results indicate that purchasing team use fully mediates the relationship between supply risk and firm performance, representing a behavior-based risk management strategy that improves firm financial performance when confronted with supply risk. The recent Covid-19 outbreak has highlighted the need for greater insights towards risk management and this paper fills a gap in the global sourcing literature by examining approaches to mitigate supply risk. From a managerial perspective, while low-cost country sourcing can improve firm performance, firms engaging in low-cost country sourcing, or contemplating doing so, should consider complementing traditional sourcing practices with capabilities to implement behavior-based risk management strategies to address supply risk.