Impact of a country’s logistical capabilities on supply chain risk R. Sreedevi S P Jain Institute of Management and Research, Mumbai, India Haritha Saranga Indian Institute of Management Bangalore, Bangalore, India, and Sirish Kumar Gouda Indian Institute of Management Tiruchirappalli, Tiruchirappalli, India Abstract Purpose – This paper aims to examine the relationship between environmental factors, risk perception and decision-making in risk management. Specifically, using attribution theory, the authors study the influence of macro-level logistical capabilities of a host country on a firm’s actual and perceived supply chain risk, and examine if this country-level factor and the firm level perception of risk affect a firm’s decision-making in risk management. Design/methodology/approach – This study uses a combination of primary data from 932 manufacturing firms from 22 countries and secondary data from the logistics performance index (LPI), and empirically tests the conceptual framework using partial least squares structural equation modeling. Findings – Key results reveal that a country’s logistical capabilities, measured using LPI, have a significant impact on managers’ risk perception. Firms located in countries with high LPI perceive lower risk in their supply chain both in the upstream and downstream, and therefore do not invest much in external integration, compared to firms in low LPI countries, and hence are exposed to high risk. Originality/value – This is one of the first empirical studies linking a country’s logistical capabilities with supply chain risk perceptions, objective supply chain risk and supply chain risk management efforts of a firm using the International Manufacturing Strategy Survey database. Keywords Supply-chain management, Risk management, Global supply chain, Logistics capabilities, Supply risk Paper type Research paper behavior and perceptions in supply chain decision-making (Ambulkar et al., 2016; Cantor et al., 2014). On the industry front too, senior supply chain executives have been emphasizing the importance of understanding behavioral factors that affect decision-making, to effectively manage risk. For example, according to John J. Brown, the director of supply chain risk management at Coca-Cola [2]: 1. Introduction Perception of risk influences a manager’s decision-making in supply chains as much as, if not more than, objective measures of risk (Ellis et al., 2010; March and Shapira, 1987; Tazelaar and Snijders, 2013; Yates and Stone, 1992). For instance, perception of a high supply disruption risk is shown to influence supply chain managers to look for alternative sources of supply (Ellis et al., 2010). The recent COVID-19 pandemic has affected supply chains across the world which have been heavily dependent on Chinese supplies. This black swan event has influenced several managers to think about developing alternative sources of supply in the future to de-risk their supply chains [1]. While this event will directly impact the objective risk, future decisions of supply chain managers will also be impacted by their individual perceptions of the extent to which they were exposed to supply disruptions due to this event. There has been growing interest among academic researchers regarding the need to understand the role of “We end up managing the risks that we perceive to be of a higher likelihood or higher consequence, but those may not be the most important risks to our company. That is why it is important to understand the role of psychological factors on risk identification and risk assessment [. . .] Risk perception is memory based and experience based [. . .] If we are in control of a situation, we feel much better about it.” So, what happens if supply chain managers perceive the risk to be lower than it actually is? Studies on behavioral risk theory posit that risk perception is a complex product of innate biases and, as risk assessment is usually based on “intuitive heuristics,” it results in biased decision-making (Hardcopf et al., 2017; Pidgeon, 1998; Renn and Rohrmann, 2000). Decision-making This work was supported by Research Seed [grant number 22072] from Indian Institute of Management Bangalore, India. The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/1359-8546.htm Received 9 May 2020 Revised 9 February 2021 20 May 2021 2 August 2021 13 August 2021 Accepted 13 August 2021 Supply Chain Management: An International Journal 28/1 (2023) 107–121 © Emerald Publishing Limited [ISSN 1359-8546] [DOI 10.1108/SCM-09-2020-0504] 107 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 in supply chains can also be biased if assessments are based on heuristics (Tazelaar and Snijders, 2013). Several researchers have shown the importance of considering objective measures to effectively evaluate the risk in the supply chain (Blackhurst et al., 2008; Kull and Talluri, 2008; Talluri et al., 2006). Attribution theory explains that individuals, especially managers, possess an innate need to comprehend and identify the root cause of an outcome, especially negative and unanticipated events such as disruptions (Folkes, 1984; Oflaç et al., 2012). Supply chain managers develop perceptions of a risky event by attributing potential causes to outcomes based on controllability, stability and locus (Selviaridis, 2016; Weiner, 1985). While the locus of causality could be either internal or external to a firm, we focus on external factors influencing the perception of supply chain risk in this study. Some of the external factors identified in the extant literature that impact supply chain risk perception (SCRP) are supply uncertainty, information insufficiency (Mantel et al., 2006), technological uncertainty, market thinness in terms of the availability of alternative sources of supply (Ellis et al., 2010); the uncertainty of supply chain disruption (Cantor et al., 2014) and the extent of control the firm has over its new ventures in a foreign country (Forlani et al., 2008). Among the external factors that influence managers’ perception of supply chain risk, environmental factors have been found to play a crucial role (Ellis et al., 2010). However, studies on the influence of external environmental factors on risk perception have been sparse. Also, several studies have attributed the success of a firm’s supply chain management to the logistical capabilities of that firm (Fugate et al., 2010; Schoenherr, 2009). However, apart from the internal logistical capabilities of a firm, supply chains are also exposed to macro-level aspects such as logistics infrastructure in the country, ease of transportation and the ability to receive shipments on time, etc. A report on global competitiveness by the World Economic Forum shows that the supporting environment for firms varies depending on their host countries’ infrastructure [3], and infrastructural dissimilarities between countries have a major impact on the supply chain performance of firms operating in those countries (Al-Shboul, 2017; Kinra and Kotzab, 2008; Wiengarten et al., 2014). Further, globalization of markets has also increased the complexity of supply chains (Christopher et al., 2011; Wagner and Bode, 2008) and is one of the key drivers of supply chain risk (Hu et al., 2019; Manuj and Mentzer, 2008). Among the various infrastructural factors, the logistical capability of a firm’s host country is one of the key external factors impacting supply chain performance, and hence, could impact the risk perception of supply chain managers. Therefore, it has become highly imperative for supply chain managers and academics to understand the influence of macro-level factors, such as a country’s logistical capabilities, on SCRP of managers, their consequent reactions and the subsequent impact on actual risk in a globalized supply chain network. While supply chain risk could be caused due to a natural disaster (referred to as disruption risk) or man-made errors (called as operational risk) (Ho et al., 2015), in the context of this study, we look at supply chain operational risk only. In the current study, by drawing from attribution theory, we examine the relationships between environmental factors, risk perception and decision-making in risk management within the supply chain context. In particular, we look at the influence of macro-level logistical capabilities on a firm’s perceived supply chain risk and examine if this country-level factor and the firm level perception of risk affect a firm’s decision-making in external integration (EI). Specifically, we strive to address the following research questions: RQ1. Do firms perceive their susceptibility to supply chain risk depending on the logistical capabilities of their host country? RQ2. Does the macro-level logistical capability of a firm’s country influence the degree to which it invests in EI? We use a combination of primary and secondary data to empirically test these research questions in our study. The primary data pertains to manufacturing firms across the globe collected through the International Manufacturing Strategy Survey (IMSS). The secondary data, which measures a country’s logistical capabilities using an index called the “Logistics Performance Index” (LPI), comes from the International Trade Department of the World Bank (Arvis et al., 2014). We study the conceptual linkages between the various constructs using the partial least squares structural equation modeling (PLS-SEM) technique. In line with our conjectures, we find evidence that firms located in high LPI countries do perceive lower risk in their supply chains. Interestingly, we find that despite the actual risk (objective supply chain risk [OSCR]) in high LPI countries being lower, a country’s logistical capabilities do not help much in mitigating operational risk in the presence of high global sourcing and sales (GSS). In other words, our results show that firms that operate globally must invest in EI efforts, irrespective of their home country’s logistical capabilities, to reduce their supply chain risk. 2. Literature review and theoretical background 2.1 Macro-level logistical capabilities A review of extant literature reveals that among the many macro-level factors in the context of global supply chains, a country’s logistical capabilities are critical determinants of a firm’s supply chain performance. The logistical capability of a country is defined as “the quality and breadth of logistics services and infrastructure available to plants located in that country” (Wiengarten et al., 2014, p. 53). This macro-level capability is captured using the international LPI, developed by the International Trade Department of the World Bank. The LPI is a benchmarking tool which determines countries’ trade logistics challenges and helps identify ways to improve their logistics performance. The international LPI is based on a global survey of “global freight forwarders and express carriers,” who rate the logistics capabilities of the countries in which they operate and the countries with which they trade (Arvis et al., 2018). It captures two dimensions of logistics capability, namely, service and infrastructure. Logistical service elements comprise warehousing, cross docking, distribution and customized logistics solutions. Infrastructure components consist of superiority and availability of physical infrastructure (roads, rails, ports and airports) and the promptness of customs 108 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 clearance procedures. While, in general, the study of such macro-level factors has not been given much attention in the supply chain literature, some studies have reiterated the importance of understanding the impact of macro-institutional factors on the functioning of organizations. Kinra and Kotzab (2008), for example, apply a strategic contingency view and argue that the macro level logistics environment influences an organization’s decision-making for operating in a global supply chain. Wiengarten et al. (2014) discuss the role logistical capabilities of a country play in supply chain management and the extent to which firms in that country engage in supply chain integration. They show that firms located in countries with good logistics infrastructure do not find the need for coordination with their supply chain partners, and hence, adopt lower levels of integration with their suppliers and customers than those located in countries with poor logistics infrastructure. However, they only examine the impact of a country’s logistical capabilities on the operational performance of the firm, in terms of quality, cost, delivery and flexibility parameters. We believe logistical capabilities have an impact on supply chain risk measures too, and therefore, in our study, we examine the influence of macro-level logistical capabilities on a firm’s perceived and OSCR measures. or impedes the information, material or product flows from original suppliers to the delivery of the final product to the ultimate end-user” (Peck, 2006, p. 132). While it is difficult to measure financial losses associated with operational risk in an objective way unlike financial risks, measuring supply chain risk in terms of deviations in performance is more useful and pragmatic (Heckmann et al., 2015; Peck, 2006). The potential deviations in supply chain performance include the inability to satisfy customers’ demand, decreased service level, delayed shipping, inefficient utilization of resources, etc. (Heckmann et al., 2015). Based on the literature, we operationalize OSCR as any potential deviation from the expected value of a supply chain performance measure. Risk mitigation is one of the most important aspects of supply chain risk management. To effectively cope with different forms of supply chain risks, firms invest in a variety of risk management techniques (Kleindorfer and Saad, 2005). For example, to manage risk in the upstream (supply disruption), firms allocate resources to assess their suppliers a priori, choose a more reliable supplier, have backup suppliers and monitor all suppliers regularly (Ho et al., 2015). Similarly, to mitigate risk in their downstream such as shipment disruptions, firms invest resources in alternative modes of transportation and continuous tracking of their shipments (Manuj et al., 2014). These risk mitigation efforts are an outcome of risk identification and risk assessment processes that precede this activity. Various risk management efforts (RME) used by firms can be classified as preventive RME and reactive RME (Thun et al., 2011; Thun and Hoenig, 2011). Studies have suggested the importance of understanding the interdependencies between the source of risk, type of risks and the mitigation strategies that include both preventive and reactive efforts (Manuj et al., 2014). Evaluating and training suppliers and delivery partners on improving their processes, continuous improvement programs, inspection and tracking of internal processes are examples of preventive RME. Buffering practices such as maintaining a backup supplier, a logistics partner and having extra capacity qualify as reactive RME. While preventive RME focus on reducing the probability of occurrence of a risk event, reactive RME aim to reduce the impact of the occurrence of a risk event. Such flexibility practices increase supply chain agility, which, in turn, improves firm performance. Though fundamentally both these efforts by firms reduce the overall risk experienced, the benefits of the preventive RME accrue to the firm well before a risk event occurs (Thun and Hoenig, 2011). Extant literature has looked at the impact of RME on supply chain risk using different constructs. Using primary data from German firms, Kern et al. (2012) study the impact of supply chain RME on the supply chain risk performance of the firm and demonstrate that the choice of risk mitigation strategy should depend on the firm’s operating environment. Therefore, these risk mitigation efforts, when applied based on a scientific risk assessment process, will help reduce the supply chain risk. 2.2 Supply chain risk management Extant research in the area of supply chain risk management has examined several topics including linkages of the construct with supply chain integration (Talluri et al., 2010; Zhao et al., 2013), global supply chains (Christopher et al., 2011; Manuj and Mentzer, 2008) and supply chain uncertainty (SCU) (Sreedevi and Saranga, 2017). However, to our knowledge, very few studies (Sato et al., 2020) empirically evaluate the linkages of external environmental factors on supply chain risk management or risk perception. There are the following three phases in the supply chain risk management process: Phase 1 includes risk identification, risk measurement and risk assessment; Phase 2 includes risk evaluation and risk mitigation; Phase 3 includes risk control and monitoring (Tummala and Schoenherr, 2011). These processes are similar for both operational and disruption-based risks. While risk identification involves identifying various sources of risk and categorizing them, risk measurement deals with the evaluation of the potential damage or consequence of the risk event’s occurrence. In the risk assessment step, the likelihood of each risk factor is determined (Kern et al., 2012). While an objective assessment of risk is recommended, many firms use subjective information based on prior knowledge, beliefs and judgments (Tummala and Schoenherr, 2011). In the context of our study, risk measurement and risk assessment are combined and considered as a single entity, as proposed by Zsidisin et al. (2004) and referred to as risk perception. SCRP is operationalized as the probability of occurrence of a risk event and the corresponding impact of that event on performance (Zsidisin et al., 2004; Ellis et al., 2010). OSCR is defined as “the potential deviations from the initial overall objective that, consequently, trigger the decrease of value-added activities at different levels” (Kumar et al., 2010, p. 3717). These activities are characterized by the availability and quality of products at the right time and the right location. Another relevant definition of OSCR is “anything that disrupts 2.3 External integration The extant literature defines External (supply chain) integration as the degree to which a firm tactically communicates and aligns with its partners in the upstream and downstream of the supply chain (Wiengarten et al., 2014). EI focuses on integration between a firm and its suppliers and customers. Given the context of our study, we 109 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 focus only on the collaborative aspect of integration and not on strategic integration. Collaborative integration deals with actions pertaining to coordinating supply chain flows through information sharing and developing collaborative approaches through knowledge sharing, planning and forecasting (Wiengarten et al., 2014). EI with key suppliers and customers has also been considered an effective tool to mitigate supply chain risk (Chen et al., 2013; Chopra and Sodhi, 2004). The importance of collaboration with supply chain partners in upstream and downstream is reflected in the definitions of supply chain risk management (SCRM). For instance, Tang (2006) defines SCRM as the management of supply chain risks “through coordination or collaboration” among supply chain members. Jüttner et al. (2003) also define SCRM as the management of risks “through a coordinated approach” among supply chain partners. Talluri et al. (2010) demonstrate how a manufacturer’s collaboration with suppliers in supplier development can effectively reduce risk. Table 1 summarizes the representative research on logistical capabilities and supply chain risk management, and their contributions using a concept-based structure (Webster and Watson, 2002). 3. Conceptual framework and hypotheses development In this section, we develop the conceptual linkages between the various constructs based on the extant literature and anecdotal evidences. The conceptual framework illustrating the relationships between LPI, supply chain risk and EI are shown in Figure 1. 3.1 Logistics performance index, supply chain risk perception and external integration Attribution theory helps understand an individual’s perception of how a phenomenon happened and how an individual attributes causes for the occurrence of the same (Kelley and Michela, 1980). Attribution to a specific cause among the most probable is identified based on the controllability and stability of the cause. When managers experience risks that are more controllable, they fear them less (Rickard, 2014; Slovic, 1987), Table 1 Overview of the extant literature on logistical capabilities and supply chain risk management S. no. SCRP Study Objectives/results 1 Forlani et al. (2008) H 2 Ellis et al. (2010) 3 Christopher et al. (2011) 4 Thun et al. (2011) 5 Chen et al. (2013) Empirically shows that the extent of control the firm has over its new ventures in a foreign country and firm capabilities influence manager’s perceptions of risk Empirically examines the factors impacting buyer’s perception of supply chain disruption risk Emphasizes the need for a structured approach to global supply chain risk management and classifies risks into different types: supply, demand, process and environmental risks Empirically analyzes the use of preventive and reactive risk mitigation approaches by small and medium sized firms and large enterprises and shows that SMEs primarily focus on reactive risk mitigation Empirically shows the effect of supply chain collaboration as a risk mitigation strategy 7 Cantor et al. (2014) Manuj et al. (2014) Examines how decision-makers’ regulatory focus and SCU impact their decision-making in RME Examines the appropriateness of different risk mitigation strategies in different risk conditions and highlights the need for a match between the risk type and risk mitigation approach Shows that supplier integration is a useful risk mitigation tool in environments with a high risk of conducting business Investigates the moderating effect of international asset dispersion on supply chain risk management Investigates the linkages between logistical capabilities, SCRP, OSCR and EI H 8 9 Wiengarten and Longoni (2015) 10 Hu et al. (2019) 11 This study H Variables OSCR LC RME H H H H Context Method US firms ANOVA US manufacturing firms UK-based companies CB-SEM Qualitative analysis H H German manufacturing firms Qualitative and factor analysis H H Australian manufacturing firms US respondents CB-SEM H Regression H H US manufacturing firms ANOVA H H Cross-Country Regression H H Cross-Country Regression H Cross-Country PLS-SEM H H Notes: SCRP – supply chain risk perception; OSCR – objective supply chain risk; LC – logistical capabilities; RME – risk management efforts (including EI); CBSEM – Covariance based Structural Equation Modeling; SMEs – Small and Medium Enterprises; ANOVA – Analysis of Variance 110 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 Figure 1 Conceptual framework country-level logistical capabilities significantly influences the way firms to engage in their supply chains and the extent to which they collaborate with their supply chain partners (Wiengarten et al., 2014). Firms with access to superior logistical capabilities tend to outsource the coordination role with its upstream and downstream players to third party logistics providers (Zacharia et al., 2011). Further, increased certainty in terms of delivery schedules due to the presence of logistical capabilities makes the firms underestimate the need for integration (Gimenez et al., 2012). However, supply chain visibility is crucial for increasing supply resiliency (Blackhurst et al., 2011), and in a global supply chain, supply chain visibility is improved significantly by sharing of information among supply chain partners (Christopher and Lee, 2004). Hence, EI with partners is widely considered an effective risk mitigation strategy. However, firms which perceive lower risk in their supply chains do not appreciate the need for sharing of information and collaboration with their supply chain partners (Zhao et al., 2013). Therefore, we posit the following: and hence, the perception of risk is usually very close to the absolute risk experienced by firms. Similarly, the higher the stability of the cause, the higher will be the attribution to the cause. As the logistic capabilities of a country cannot be changed overnight, the perception of risk in countries with lower LPI will continue to persist in the minds of the managers. While large multinational firms can and do choose the location of operations of a plant based on criteria such as the infrastructure of the host country, many local firms have little control over the infrastructural capabilities of the country in which they are operating. Firms in countries with weak logistical capabilities, thus perceive a higher probability of a disruption in their supply chain due to logistical failures. Given that the physical transport of goods is an integral part of any manufacturing firm, its logistical capabilities, which is a function of the host country’s logistical capabilities, impact the performance of its supply chain (Fugate et al., 2010; Gimenez et al., 2012). Further, firms located in countries with good logistical capabilities generally experience predictability in customs clearance and certainty in their delivery schedules. Also, an organization’s risk perception reduces with increasing credibility and trust in the risk-managing institutions and agencies (Oflaç et al., 2012; Renn, 1991). Risk management agencies for the firm could either be internal (for instance, supply chain management or risk management departments) or external to the firm. External agencies could majorly be the host country’s infrastructure and services management agencies and their ability to manage, inter alia, logistics-related risks. Thus, we hypothesize that as follows: H1b. H1a. The impact of a country’s logistical capabilities on a firm’s EI efforts is mediated by SCRP. 3.3 Logistics performance index and objective supply chain risk The physical infrastructure component of logistical capabilities plays a very important role in facilitating the seamless production and distribution of goods manufactured by firms. Firms positioned in physically well-networked locations will be able to fulfill customer order with the least glitches. These infrastructural elements also help firms cut down on idle production time, which arises due to supplier delivery delay. Ikenson (2009) points out that the success of a firm in offering an undisrupted flow of goods and services depends to a great extent on the excellence and reliability of the trade infrastructure established in that firm’s country. Further, Al-Shboul (2017) shows that the logistical infrastructure framework plays a significant role in increasing supply chain agility. Firms located in countries which provide industry friendly and standardized customs processes benefit from a reduction in the number of instances of delayed shipping and the probability of losing out on orders due to the same. Firms located in countries with poor logistics infrastructure and inefficient customs procedures find it difficult to receive goods on time and to fulfill their delivery requirements (Arvis et al., 2014). Logistics performance is, therefore, strongly linked to the reliability and predictability of delivery schedules pertaining to different players in the supply chain. Therefore, we hypothesize that as follows: The higher the logistical capability of the host country, the lower the level of supply chain risk perceived by firms situated in that country. H2. 3.2 Mediating role of supply chain risk perception between logistics performance index and external integration Firms can achieve superior operational performance by coordinating with their partners in the supply chain (Sanders, 2008; Scholten and Schilder, 2015). The presence of superior Firms situated in countries with high LPI have lower OSCR than those in countries with low LPI. 4. Research methods 4.1 Sampling and data collection Data used in this study is a combination of primary and secondary data. Secondary data on logistical capabilities of various countries is collected from the World Bank while that 111 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 on individual risk management elements and other constructs in the study comes from the primary data collected from various manufacturing firms across the world. IMSS is a survey conducted every four years by a global network of research scholars. The survey seeks responses from various manufacturing firms on their efforts, capabilities and performance aspects. We use data from the sixth edition of the IMSS, which was conducted in 2013. In all, 22 countries participated in this edition and a total of 932 survey responses were obtained. The survey was filled by senior managers and executives, of a level equivalent to or higher than the production manager of the plant. Participating plants had to have a minimum of 50 employees to be eligible to participate in the survey. Several noteworthy studies in the field of operations and supply chain management have used data collected for the IMSS project (Cheng et al., 2016; Frohlich and Westbrook, 2001; Gouda and Saranga, 2018; Wiengarten et al., 2014, 2019). We use LPI data from the “International Bank for Reconstruction and Development/The World Bank” as a measure of the logistical capabilities of countries. LPI data from different editions has been used for analysis extensively in supply chain and logistics literature (Kabak et al., 2020; Kinra et al., 2020; Lin and Cheng, 2019; Wiengarten et al., 2014; Wong et al., 2017). We used the 2014 LPI scores for which the data was collected in 2013, and hence, this is the information companies would have had when they filled the survey in early 2013, i.e. their perception of risk would be based on the then logistical capability of their country. The 2014 LPI survey was answered by 1,000 respondents from 143 countries. The respondents represented all economic regions equitably with around 23% from high income countries, 53% from middle income countries and the rest from lower income countries. A majority of the respondents were senior executives, area or country managers and department managers directly involved in the day-to-day logistics of the companies. These respondents rated eight random countries which were chosen based on the importance of the export and import markets to the country in which the respondent’s firm was located. Despite the perceptions about bilateral ties between countries, it was found that perception does not bias the scores, and thus established the reliability and validity of the scores (Arvis et al., 2014). Further, the reason for combining country-level logistical capabilities with firm level data on risk is due to the pressing need for understanding the role of macro-level factors on firm level decision-making in supply chain risk management. With the globalized nature of supply chains and international trade, the quality of logistic infrastructure and services in a firm’s operating environment has a significant impact on how firms operate their supply chains and how they interact with other players in their supply chain (Wiengarten et al., 2014; Zacharia et al., 2011). Further, we are motivated by several relevant studies in this field which have combined country-level data of indices similar to LPI (such as Hofstede’s dimensions of national culture, GLOBE indices, Global Competitiveness Index and UN World Risk Index) with firm level data (Kauppi et al., 2016; Sancha et al., 2015; Wiengarten et al., 2014). A combination of primary and secondary data brings together the benefits of capturing the constructs of interest and reduced the chances of common method bias (Calantone and Vickery, 2010). Extant literature has used secondary data from different sources such as archival studies, textual data, social media data, large scale surveys conducted by organizations such as the United Nations (UN) and World Trade Organization and other independent research bodies such as Hofstede’s dimensions and GLOBE concept of national culture (data for which was collected using a large scale survey across multiple countries) (Calantone and Vickery, 2010; Wong et al., 2017). Other similar indicators which are based on large scale surveys are the Worldwide Governance Index (for instance, Wiengarten et al., 2016) and the Corruption perception index (for instance, Larson, 2020). Our sample overview with respect to the LPI scores and industry wise distribution of primary data is shown in Tables 2 and 3, respectively. 4.2 Measures The constructs were measured by multiple items from the survey, designed based on the existing literature. Table 4 shows Table 2 Sample summary of participant firms and LPI score by country Country Malaysia Germany Slovenia Norway Taiwan Belgium Spain Canada Switzerland Brazil Sweden Finland Portugal Denmark Romania Italy USA The Netherlands Hungary Japan India China Frequency LPI score 14 15 17 26 28 29 29 30 30 31 32 34 34 39 40 48 48 49 57 82 91 128 3.59 4.12 3.38 3.96 3.72 4.04 3.72 3.86 3.84 2.94 3.96 3.62 3.56 3.78 3.26 3.69 3.92 4.05 3.46 3.91 3.08 3.53 Table 3 Profile of firms that participated in the IMSS survey Industry grouping Fabricated metal products (ISIC 25) Computer, electronics and optical products (ISIC 26) Electrical equipment (ISIC 27) Machinery and equipment not elsewhere classified (ISIC 28) Motor vehicles, trailers and semi-trailers (ISIC 29) Other transport equipment (ISIC 30) Total 112 Frequency (%) 282 123 153 231 30 13 16 25 93 50 932 10 5 100 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 Table 4 Measures used in proposed constructs Constructs and items Measurement model SCRP Inbound Risk (IR) (1- Low, 5-High) 1. A key supplier fails to supply affecting your operations – Probability 2. A key supplier fails to supply affecting your operations – Impact Shipment risk (SR) (1-Low, 5-High) 1. Your shipment operations are interrupted affecting your deliveries – Probability 2. Your shipment operations are interrupted affecting your deliveries – Impact EI Supplier Integration (SI) (1-Low, 5-High) 1. Sharing information with key suppliers 2. Developing collaborative approaches with key suppliers 3. System coupling with key suppliers Customer integration (CI) (1-Low, 5-High) 1. Sharing information with key customers 2. Developing collaborative approaches with key customers 3. System coupling with key customers OSCR 1. Number of days of lost production past year due to supply failures or operations disruption 2. Percentage of customer deliveries affected by operational failures 3. Late shipments (as a percentage of orders delivered) SCU (1-Low, 5-High) 1. Your demand fluctuates drastically from week to week 2. Your total manufacturing volume fluctuates drastically from week to week 3. The mix of products you produce changes considerably from week to week 4. Your supply requirements (volume and mix) vary drastically from week to week 5. Your products are characterized by a lot of technical modifications 6. Your suppliers frequently need to carry out modifications to the parts/components they deliver to your plant Position in supply chain (PSC) Percentage of sales to end users [6] Global sourcing Percentage of sourcing outside the firm’s country Global sales Percentage of sales outside the firm’s country Second-order formative First-order reflective First-order reflective Second-order formative First-order reflective First-order reflective First-order reflective First-order reflective First-order reflective First-order reflective First-order reflective a scale from one (worst) to five (best)” (Arvis et al., 2018, p. 43). Measures include the performance of a country in terms of six elements of the existing logistics environment: the summary of the items used to measure each construct. In this study, risk perception is measured in terms of probability and impact of failure in upstream and downstream of the supply chain. Items for this construct are adopted from the existing literature (Ellis et al., 2010; Tsai et al., 2008) and the construct is modeled as a second-order formative construct. The OSCR is a measure of the firm’s operational risk in terms of supply (inbound) risk and shipment (delivery) risk. This construct is measured using as follows: Number of days of lost production due to supply and operational disruptions; Number of customer deliveries affected by operational failures; and Late shipments (as a percentage of orders delivered) (Kumar et al., 2010). “Efficiency of customs clearance, quality of trade and transport-related infrastructure, ease of arranging competitively priced shipments, competence and quality of logistics services, ability to track and trace consignments and frequency with which shipments reach the consignee within the scheduled or expected time.” (Arvis et al., 2018, p.8). These six measures loaded on LPI, and therefore, LPI is a unidimensional construct derived by standardizing the weighted average of the individual scores of the six items (Arvis et al., 2018). 4.3 Control variables Uncertainty in the supply chain is a major factor influencing managers’ risk perception (Zsidisin, 2003), and hence, we control for it. We operationalize SCU in terms of supply, demand, product and manufacturing uncertainty (Ho et al., 2005). Further, risk perception is also impacted by the volume of GSS a firm engages in (Ellis et al., 2010), and hence, we use the percentage of global sourcing and percentage of global sales as control variables. For the OSCR as a dependent variable, we use the firm’s position in the The multidimensional scale of EI is drawn from Frohlich and Westbrook (2001) and the items constitute the extent to which the focal firm concentrates on coordinating planning and inventory decisions with key suppliers and customers. To capture the essence of the logistical capabilities of a country, World Bank has developed the LPI. “The LPI is a multidimensional assessment of logistics performance, rated on 113 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 supply chain as a control variable since the need for logistics likely varies from manufacturers of subsystems to manufacturers of finished products as they cater to different types of players in the supply chain (Wiengarten et al., 2014). Position in the supply chain is captured as the quantum of sales to customers who are end-users. We also control for GSS as these would have an impact on the OSCR. GSS were captured as the percentage of suppliers and customers, respectively, situated outside the firm’s country (Wiengarten et al., 2014). Table 6 Discriminant validity assessment 4.4 Reliability and validity To evaluate the reliability and validity of the constructs, we performed confirmatory factor analysis and used four tests to determine the convergent validity and the internal consistency of the reflective constructs as follows: Item loading, Cronbach’s alpha, composite reliability (CR) and average variance extracted (AVE) of the constructs (Fornell and Larcker, 1981). Table 5 shows the survey items and descriptive statistics for each of the constructs. The values for Cronbach’s alpha (a) and CR exceed the 0.7 cut-off accepted in the literature. Further, all constructs surpassed the established 0.50 cut-off value for AVE. The results endorse that the convergent validity of all the reflective constructs in our model is adequate (Fornell and Larcker, 1981). To assess discriminant validity, the AVE and CR values were compared with the squared latent variable correlations. The Construct CR LPI IR SR SI CI OSCR SCU PSC GSS LPI IR SR SI CI OSCR SCU PSC GSS 1.00 0.01 0.01 0.02 0.03 0.00 0.00 0.00 0.01 0.68 0.29 0.01 0.00 0.02 0.04 0.00 0.00 0.68 0.04 0.04 0.00 0.05 0.00 0.00 0.64 0.50 0.01 0.01 0.00 0.01 0.64 0.00 0.04 0.01 0.01 0.49 0.00 0.54 0.00 0.00 1.00 0.00 0.00 0.00 1.00 1.00 0.81 0.78 0.84 0.80 0.76 0.87 1.00 1.00 results as shown in Table 6 indicate that the AVE (shown in the matrix diagonal) and CR values are higher than the squared inter-construct correlation values shown in the off-diagonal of the correlation matrix, thereby validating a satisfactory level of discriminant validity (Fornell and Larcker, 1981). 4.5 Common method variance assessment One of the major issues with survey-based studies is the presence of common method variance (CMV). To reduce CMV, the survey was filled by multiple respondents. Different sections of the survey were required to be filled by corresponding section heads. The survey questionnaire was, Table 5 Measurement model results (descriptive statistics, factor loadings, item reliability and convergent validity) Factor Inbound risk (a = 0.77, CR = 0.84, AVE = 0.68) Item IR1 IR2 Mean 2.718 3.628 SD 1.174 1.205 Loading 0.748 0.728 Shipment risk (a = 0.91, CR = 0.78, AVE = 0.65) SR1 SR2 2.272 3.321 1.190 1.331 0.697 0.725 Supplier integration (a = 0.84, CR = 0.89, AVE = 0.68) SI1 SI2 SI3 3.186 3.160 3.016 1.000 1.038 1.027 0.722 0.761 0.749 Customer integration (a = 0.75, CR = 0.84, AVE = 0.56) CI1 CI2 CI3 2.955 2.755 3.035 1.130 1.215 1.095 0.847 0.829 0.648 OSCR (a = 0.75, CR = 0.84, AVE = 0.56) OSCR1 8.363 14.462 0.783 OSCR2 OSCR3 4.674 9.840 9.840 16.855 0.748 0.537 SCU1 2.485 1.073 0.718 SCU2 SCU3 SCU4 SCU5 SCU6 2.542 2.442 2.685 3.142 3.081 1.125 1.281 1.136 1.039 1.212 0.766 0.687 0.808 0.698 0.773 (a = 0.75, CR = 0.84, AVE = 0.56) SCU (a = 0.75, CR = 0.84, AVE = 0.56) (a = 0.75, CR = 0.84, AVE = 0.56) Notes: p-value < 0.01; p-value < 0.05;; p-value < 0.1; SD = Standard Deviation 114 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 therefore, answered by senior executives ranging from general managers to managers of production, purchasing, marketing and supply chain functions. We also tested for CMV using Harman’s one-factor assessment (Podsakoff and Organ, 1986). As part of this test method, we performed exploratory factor analysis with principal components extraction and no rotation for all the constructs. The existence of common method bias would have resulted in a single factor accounting for a key fraction of covariance in the variables. Our results reveal that no single factor stands out in the factor structure and 10 factors had Eigen values more than the cut-off value of one, with the first factor explaining only 15% of the variance. Thus, we can conclude that common method bias is not an issue in this study. With respect to mediation analysis for H1b, we reported our results in Table 7. We used the bootstrapping method proposed by Shrout and Bolger (2002) to test the mediation effect. As pointed out in a study by Malhotra et al. (2014), this method does not call for the mediation effects to be normally distributed and has a more robust statistical power than the methods proposed by Baron and Kenny (1986) and Sobel (1982). The following three paths were assessed: the path from the independent variable (LPI) to the mediating variable (SCRP) (path a); the path from the mediating variable (SCRP) to the dependent variable EI (path b); and the direct path from LPI to the dependent variable (EI) (path c, when tested concurrently with the indirect paths linking a and b). In total, 5,000 bootstrap samples were generated in SmartPLS 2.0M3. The results as shown in Table 7 indicate that the interval did not contain zero for both indirect and direct effects, thereby confirming partial mediation effects. The effect of LPI on EI was partially mediated by SCRP, thereby supporting our hypotheses H1b. Our results indicate that if a country’s LPI is very high, companies perceive the risk to be low, and hence, make lesser investments in EI and vice-versa. The structural model results indicate that the LPI score of the host country in which the firm is located has a negative impact on the OSCR. Thus, we find support for Hypothesis H2 ( b = 0.091, p < 0.01). The results from our control variables are in line with the extant literature. OSCR and Perception of risk are both positively associated with SCU (Sreedevi and Saranga, 2017). We also find that the higher the GSS percentage, the higher is the OSCR experienced by the firm (Manuj and Mentzer, 2008). Our post hoc analysis showed that the OSCR of firms located in high LPI countries is indeed significantly lower than that of firms in low LPI countries. To understand the impact of LPI on supply chain risk, we explored the impact of the COVID-19 pandemic on supply chain risk in different countries. Manufacturing Purchasing Managers Index (PMI) is a good proxy for the manufacturing activity and business continuity in the sector (and hence, of supply chain risk). While COVID-19 affected all countries severely, we tried to understand the dip in Manufacturing activity in high LPI and low LPI countries. We found that between January and August 2020, in high LPI countries such as Germany, Sweden, Singapore and Taiwan, the dip was minimal (by a margin of around 10 points) while low LPI countries such as India, Russia and Nigeria had a larger dip in the manufacturing PMI (by a margin in excess of 20 points [4]). This indicates the resilience shown by firms located in high LPI countries despite the best support from regulators across the world to revive their economies. To explore this finding further, we evaluated the impact of global supply chain configuration on supply chain risk. To test the moderating role of GSS on the relationship between LPI and OSCR, we median split the sample into high/low levels of GSS. We then did a multigroup moderator regression analysis to examine the main effects of high and low levels of LPI for high and low levels of GSS. The results are shown below. The interaction plot as shown in Figure 3 indicates that the effect of LPI on mitigating OSCR has been reduced significantly when GSS is higher than average. This result 5. Results We use the partial least square (PLS) structural equation modeling (SEM) to test our conceptual model using SmartPLS 2.0M3 software (Ringle et al., 2005). PLS is one of the most extensively used methods for examining the direct and indirect effects of several variables simultaneously (Hair et al., 2011). We use PLS in this study for the following three reasons: 1 It is suitable for studying complex models with mediation effects and second-order constructs (Peng and Lai, 2012); 2 PLS can model both formative and reflective constructs, which is crucial for our study (Wetzels et al., 2009); and 3 PLS is based on a series of ordinary least squares regressions, and hence, has fewer statistical specifications and doesn’t have restrictions on sample size unlike the covariance based SEM and also offers higher statistical power (Reinartz et al., 2009). H1a posits that LPI is negatively associated with SCRP. Figure 2 shows the results of the structural model along with standardized path coefficients and the corresponding levels of significance. As seen from Figure 2, the direct effect is negative and significant ( b = 0.066, p < 0.1), providing support to H1a. Figure 2 Results of the structural model 115 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 Table 7 Summary of mediation test results Mediation path Indirect effect (a b) Direct effect (c’) 5% Lower bound 95% Upper bound Zero included 5% Lower bound 95% Upper bound Zero included Mediation type LPI fi SCRP fi EI 0.02 0.01 No 0.254 0.124 No Partial studies (Rickard, 2014; Slovic, 1987) to establish the role of external factors such as logistical capabilities on risk perception. We not only find that firms in high LPI countries perceive lower risk in their supply chains but also that, as a result, these firms do not invest much in supply chain risk management such as EI efforts with their suppliers and customers. This result is in line with extant literature which has discussed the role of the external environment on supply chain decision-making (Kinra and Kotzab, 2008; Wiengarten et al., 2014). Also, while Wiengarten et al. (2014) find that firms that are present in countries with high LPI invest in lower levels of EI, we show that this is because of low risk perception. Research on usage of appropriate methodologies (Hair et al., 2011; Peng and Lai, 2012) has suggested that inappropriate measurement models (for instance, reflective models instead of formative and first order models instead of higher order models) in PLS-SEM can severely bias the results. Our study uses the appropriate formative measurement model for SCRP and EI which are estimated based on both the constructs part of these second-order constructs. Also, the use of second-order constructs makes our model more parsimonious and increases the degrees of freedom. Figure 3 Interaction plot shows that the effect of LPI in mitigating supply chain risk reduces when firms operate in a global supply chain. We find that in high LPI countries, firms that do high levels of GSS benefit less from their home country’s logistical capabilities when it comes to supply chain operational risk. Our results also show that there is no significant difference in OSCR between high LPI and low LPI countries when firms operate in a global supply chain network. The reason for this could be that as levels of GSS increase, risks that were earlier confined to local geographical regions get diffused globally involving numerous supplier and customer networks across the globe (Donner and Kruk, 2009; Manuj and Mentzer, 2008). Therefore, the host country’s logistic capabilities play an insignificant role in such cases. 6.2 Managerial and policy implications Our empirical study has several important managerial insights. First, our research reinforces anecdotal evidence from extant literature and empirically establishes that firms’ decisionmaking pertaining to the adoption of risk mitigation strategies is based on their perceptions of risk. In particular, we find that managers’ risk perception is influenced by the firm’s home country logistics infrastructure. In addition, our findings also demonstrate that in today’s globalized supply chain environment, a home country’s logistics infrastructure is not sufficient to reduce the supply chain risk. Therefore, our findings point toward a potential risk that supply chain managers from high LPI countries may set themselves up for if they go simply by their home country’s LPI infrastructure and turn a blind eye to the fact that their supply chains are global in nature. Hence, firms need to foster better-decision making by looking at objective risk estimation, which is more reliable than subjective risk assessment. Second, our study demonstrates the importance of EI in mitigating supply chain risk. In a global supply chain, firms operating in one country will have to depend on a number of firms operating in several other countries to source raw materials or market their goods, and hence, supply chain managers must be aware of the differences between infrastructural support in countries they are operating in so as to effectively manage their supply chains. We find that while firms with low levels of GSS benefit from their host country’s logistical capabilities, such macro-level capabilities alone do not help firms which source and sell globally. While both LPI and GSS seem to affect the supply 6. Discussion and implications The objective of this study was twofold as follows: to determine the relationship between a firm’s supply chain operational risk and its host country’s logistical capabilities and to evaluate the pivotal role of risk perception in explaining how macro-level logistical capabilities impact a firm’s decisions on EI with its supply chain partners. 6.1 Theoretical implications Our findings show that a manager’s risk perception is strongly influenced by the firm’s supporting environment, in particular the logistical capabilities of a firm’s host country. Extant literature in Supply Chain Risk Management has studied the factors affecting SCRP and identified the importance of external environmental factors (Moktadir et al., 2018; Schoenherr et al., 2008; Tummala and Schoenherr, 2011; Sato et al., 2020). However, most of the research has used metaheuristic methods to study this phenomenon. Using Attribution theory, similar empirical studies were conducted in Strategy (Mitchell, 1995) and Organizational 116 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 chain risk experienced by a firm, ideally firms need to invest in those activities that will maximize their returns in terms of reduction in risk. With demand becoming stagnant in the developed economies and growth coming from developing countries, it is becoming imperative for firms across the globe to target and cater to the growing demand in these developing markets (Mudambi et al., 2017). The recent coronavirus pandemic has also disrupted several global supply chains, pushing firms to think of reshoring a majority of their supplies. Further, as local governments in economies emphasize on local production and local sourcing in return for market access, the need for good logistics infrastructure is becoming critical for success in these markets. Firms in Low LPI countries such as India, therefore, need to work closely with industry associations and regulators to develop local logistics infrastructure. After the COVID-19 pandemic disrupted the global supply chains, many auto original equipment manufacturers and Auto component manufacturers in India started focusing on local suppliers [5]. Even though this was a call to all businesses by the nation’s leader, these firms have been working with policymakers to achieve this in an effective manner. This would not only benefit the global firms operating locally but also would help develop the local industry. Market and associated network effects would contribute to overall economic activity. However, given that these infrastructure development projects take a long time, the chances of them reducing the risk in the short-term are low. Despite that, firms should work toward these for long-term sustainable risk reduction activities. On the other hand, firms in the developed countries (high LPI) with the high level of global sourcing should work toward developing a strong local supplier base, given the increasing number of supply disruptions internationally. This local supplier base will not only help firms reduce the supply chain operational risk of sourcing products globally but also it will reduce overall lead times, giving them a competitive advantage. In more recent times, firms are also investing in local sourcing as a part of their overall sustainability strategy. who are the main respondents of the LPI survey might not give a complete picture of the logistics infrastructure in poorer countries which are primarily dominated by traditional operators. The COVID-19 pandemic has put several supply chains in countries across the world and their logistical capabilities to test. This black swan event can bring out the real differences in the logistical capabilities and it will be interesting to study these relationships with data from the post COVID-19 world. Notes 1 www.bloomberg.com/news/articles/2020-03-27/iphonemakers-look-beyond-china-in-supply-chain-rethink 2 www.enterrasolutions.com/2013/03/perceptions-can-affectsupply-chain-risk-management.html 3 www3.weforum.org/docs/WEF_TheGlobalCompetitiveness Report2019.pdf 4 Based on data from Statista and Trading Economics - www. statista.com/statistics/1033981/pmi-developed-emergingcountries/andhttps://tradingeconomics.com/singapore/ manufacturing-pmi 5 www.livemint.com/companies/news/auto-vendors-go-vocalfor-local-11595384625904.html 6 Percentage of sales to end users was chosen to represent firms position in a supply chain. 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(2004), “An analysis of supply risk assessment techniques”, International Journal of Physical Distribution & Logistics Management, Vol. 34 No. 5, pp. 397-413. About the authors R. Sreedevi is a faculty in the area of Operations & Supply Chain Management at SPJIMR, Mumbai. She has completed her doctorate from IIM-Bangalore. Her research has been recognized as one of the winners of the Emerging Economies Doctoral Student Finalist Award, presented at the POMS 27th Annual Conference in Orlando, USA. In addition to her dissertation research, other areas of research interests include responsible supply chains, humanitarian logistics, behavioral operations, marketing-operations interface and affordable 120 Impact of a country’s logistical capabilities Supply Chain Management: An International Journal R. Sreedevi, Haritha Saranga and Sirish Kumar Gouda Volume 28 · Number 1 · 2023 · 107–121 health-care operations. Prior to joining IIM-Bangalore, she worked for two years in the industry and two years in Industrial Research and Development. She holds a BTech degree from Madras University and MTech from IIT Delhi. Sloan Management Review and Journal of Operational Research Society. She also co-authored a book, titled Reliability and Six Sigma, published by Springer and has written many cases and book chapters. Dr Haritha Saranga is a Professor in the Production and Operations Management Area at the Indian Institute of Management Bangalore. Haritha’s research interests include studying quality, productivity and sustainability aspects of firms operating in agricultural, automotive, pharmaceutical and health-care supply chains in India and abroad. She uses both empirical and analytical methods in her research, including data envelopment analysis, multiple regression, Time series, panel data and optimization. Haritha Saranga is a Fellow of MIRCE Akademy, Exeter, UK. She has published several articles in refereed international journals, such as Production and Operations Management, Journal of International Business Studies, European Journal of Operational Research, MIT Prof. Sirish Kumar Gouda is a faculty in the Operations Management and Decision Sciences Area at the Indian Institute of Management Tiruchirappalli. His research interests include Sustainable Operations, Supply Chain Risk and Behavioral Operations. He has several publications in leading management journals such as European Journal of Operational Research, Information & Management, International Journal of Production Economics, International Journal of Production Research, Supply Chain Management Review and The TQM Journal. He has also presented his research work at several national and international Conferences. Sirish Kumar Gouda is the corresponding author and can be contacted at: sirish@iimtrichy.ac.in For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: permissions@emeraldinsight.com 121