Supplier risk management in direct sourcing from China

Studies regarding risk management in low cost country (LCC) sourcing are limited considering the dramatic increase in direct sourcing from LCC. The purpose of this paper is to present supplier risk management mechanisms in sourcing directly from China. An in-depth case study serves to identify the perceived risks in sourcing directly from China. This is followed by exploratory studies with nine industrial product companies to study supplier risk management. Identified perceived risks are classified as performance and relational risks managed by trust and control mechanisms. Involving Chinese employees, local presence and constant communication are three interrelated antecedents for managing risks. Prioritised customer, cross-functional team, supplier development and performance feedback are identified as four trust based risk management mechanisms. Performance measurement, clarity of specifications, supplier selection and contractual agreements are the four control based risk management mechanisms. Trust precedes control and determines the effectiveness of control, though both are pursued simultaneously.