Digital transformation expands geographic reach of global supply chains

The study explains that firms do not expand their networks randomly. Instead, they focus on regions where supply quality, political stability, economic ties, industrial specialization and logistical connections allow reliable sourcing. Digital tools make cross regional expansion easier by reducing communication costs, improving transparency and lowering coordination barriers.

Companies are rapidly widening the geographic spread of their global supplier networks, and new evidence shows that digital transformation is the force enabling that expansion. As global markets face rising instability from trade tensions, shifting policy landscapes and geopolitical risk, firms with stronger digital systems are better equipped to secure suppliers in more countries and maintain continuity in their operations. The shift marks a major change in how supply networks evolve, and highlights the growing importance of digital capacity in managing global uncertainty.

The peer-reviewed article titled “Digitalization as a Systemic Enabler: Expanding the Geographic Scope of Global Supplier Networks in Chinese Firms,” analyzes more than a decade of data from Chinese listed firms and offers the strongest evidence yet that digital tools have become a strategic capability, not just an operational upgrade. It shows that digitalized firms are better at spreading their supplier base across many countries and can do so more effectively in volatile global environments.

Digitalization emerges as a strategic driver of supplier expansion

The study finds that companies with higher digital transformation scores maintain supplier networks that stretch across more countries. Digitalization allows firms to identify new suppliers faster, evaluate them more accurately and manage a wider network with lower risk. The authors build a comprehensive digitalization index that captures six dimensions: digital leadership, digital outputs, technology readiness, organizational support for digital processes, application of digital tools across firm functions and the surrounding digital environment.

Based on firm year data from 2011 to 2023, covering more than twelve thousand observations, the analysis shows that more digitalized firms consistently expand the number of countries they source from. This relationship remains strong even after accounting for firm size, leverage, profitability, ownership type, board structure and other factors that typically shape sourcing behavior. The finding holds across all model settings, demonstrating that digitalization drives global supplier diversification in a direct and measurable way.

Scope expansion rises during global uncertainty

The study found that digitalization becomes even more powerful when uncertainty is high. The researchers test the impact of three indicators of global volatility: global economic policy uncertainty, world trade uncertainty and geopolitical risk. During periods when these indicators rise, the positive link between digitalization and supplier network expansion strengthens. This means that firms rely more heavily on their digital capabilities when the global landscape becomes harder to navigate.

Under high uncertainty, companies face disruptions in trade rules, market access, cross border logistics and supplier reliability. Digital systems help firms scan a wider market for alternative suppliers, maintain communication, share data in real time and coordinate with international partners even under sudden policy shifts. The study shows that this capacity allows firms to increase their supplier country count more aggressively when global conditions are unstable. For policymakers, this finding suggests that digital transformation plays a crucial role in improving national supply chain resilience.

Innovation acts as the channel connecting digitalization to supplier growth

The analysis identifies two internal innovation processes that act as the pathway between digitalization and supplier expansion: process innovation and technological innovation.

Process innovation refers to improved workflows, faster internal coordination, automated data handling and more efficient communication systems. These improvements make it easier for firms to onboard new suppliers, evaluate supplier performance and integrate multiple partners across borders.

Technological innovation refers to new digital tools such as big data platforms, cloud systems, digital procurement tools, smart monitoring systems and enterprise resource planning platforms. These technologies make it possible to manage supplier portfolios across a large geographical area and reduce the complexity of supervising distant partners.

The study shows that both types of innovation rise with digitalization, and both are linked to expansions in supplier geographic scope. This confirms that digital transformation works through internal capability building, giving firms the structure needed to broaden their network reliably.

Supplier expansion concentrated in Asia, Europe and the Americas

The authors find that Chinese firms tend to expand into three main regions. Asia remains the most common destination, reflecting supply chain density, proximity, existing relationships and production specialization in many Asian economies. Europe and the Americas follow as major regions where supplier diversification is taking place.

The study explains that firms do not expand their networks randomly. Instead, they focus on regions where supply quality, political stability, economic ties, industrial specialization and logistical connections allow reliable sourcing. Digital tools make cross regional expansion easier by reducing communication costs, improving transparency and lowering coordination barriers.

State ownership and firm size shape global supplier strategy

Ownership structure plays a major role in shaping how firms build their networks. State-owned enterprises in China tend to have more concentrated supplier portfolios and do not spread their sourcing across as many countries. The study suggests that these firms place higher emphasis on national security, domestic procurement and policy alignment. This leads to supplier networks that are less geographically dispersed compared to those of private firms.

Firm size also matters. Large companies, especially those with substantial assets and broader organizational structure, build supplier networks across more countries. Larger firms have the financial strength and management capacity to establish and maintain relationships with suppliers in multiple regions. This means that small and medium enterprises may face more challenges in global diversification unless they improve their digital systems.

Resource dependence theory extended to the global network level

Traditionally, this framework focuses on dependencies between a firm and a specific supplier or buyer. Xu and Wang shift the focus to the entire network, showing that firms use geographic dispersion as a strategic tool to reduce dependence on any single country or supplier. Digitalization strengthens this tool by enabling firms to build and govern large, dispersed networks more effectively.

This network-level perspective also reframes how firms respond to global disruptions. Instead of merely adjusting contracts with one supplier, firms redesign the geographic structure of their entire network, adding or removing countries to reduce exposure to specific risks.

Policy implications for national supply chain resilience

Digital transformation at the firm level indirectly contributes to national supply chain stability. When more firms achieve digital maturity, the overall sourcing base of the economy expands geographically, reducing dependence on a small set of foreign suppliers.

Governments that invest in digital infrastructure, digital literacy, data sharing policies and innovation ecosystems strengthen the capacity of domestic firms to survive global instability. The study shows that digitalization is not simply a business upgrade. It is a resilience mechanism that helps firms navigate volatility in trade policy, geopolitical conflict and cross border logistics.

The authors also note some limitations. The data focuses on Chinese listed companies and may not reflect firms in different institutional environments. The study captures the number of supplier countries but does not analyze the full structure of supplier networks or the strength of specific relationships. In addition, the study’s design measures changes over time but does not examine the detailed process of how suppliers enter or exit the network.

The authors call for future research to examine non-Chinese companies, to explore richer supplier network structures and to develop designs that track dynamic evolution over time.