The risk of limited sourcing locations
Economies may be built on sectoral dominance, but there comes a point where specialization and saturation present a risk. The Global Risk Sourcing Index introduces the ‘Global Supplier Concentration Index’, which evaluates how concentrated a country or industry’s foreign supply chain is across all tiers. Calculated using OECD Input-Output tables and the Herfindahl-Hirschman Index (HHI), a widely accepted measure of market concentration, the index reveals hidden dependencies.
A high score suggests supply is dominated by a small number of countries or firms, increasing disruption risk, while a low score indicates a more resilient, supply chain.
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Why it matters
Supplier concentration has emerged as a systemic vulnerability in global supply chains. Decades of cost-driven sourcing have led to structural dependencies, with production consolidated in specific low-cost, high-efficiency regions. While this delivered short-term savings, it also created a critical weakness.
Concentration acts as a force multiplier; the impact of any disruption, be it a natural disaster, geopolitical conflict, or a simple factory fire, is significantly worsened if too much of your supply is located in one place.
What the data reveals about Supplier Concentration in Supply Chains
The Global Sourcing Risk Index reveals that high concentration risk exists in both expected and unexpected places.
Mexico: The Risk Within the Opportunity
Mexico’s position as the #1 highest-risk country for supplier concentration highlights a critical paradox in modern sourcing. As companies flock to Mexico to nearshore and diversify away from China, they are collectively creating a new, highly concentrated dependency.
The surge in demand is placing Mexico’s infrastructure, energy grid, and labor markets under intense pressure, especially in industrial zones like Monterrey and Tijuana. This turns a perceived solution into a potential new single point of failure.
The Developed World’s Chokepoints: Canada and Australia
The high rankings of Canada and Australia demonstrate that concentration risk is not just an emerging-market problem. In these advanced economies, the risk stems from a large reliance on a single trade partner. Canada has a large import reliance on the US while Australia has a large reliance on China. An additional area of concentration concern is that these two geographies have highly concentrated areas of activity.
In Canada, a few firms dominate energy production, and limited pipeline capacity creates chokepoints. In Australia, a handful of players like BHP and Rio Tinto control the export of crucial commodities. A local disruption, like a wildfire or a strike, can therefore have an outsized impact on global supply.
Asia’s Dominant Hubs: China, India, and Vietnam
Over time, global supply chains for entire sectors have become deeply concentrated in specific Asian markets. China remains the world’s factory for electronics and apparel, creating massive geographic clusters.
India commands over 55% of the global IT and BPO market, making it a risk hotspot for any company reliant on outsourced tech services.
Meanwhile, Vietnam’s success in attracting brands seeking a “China alternative” has led to its own growing overreliance on a still-developing infrastructure. For each, sectoral dominance has become a source of systemic risk.
Are You Asking the Right Questions About Supplier Concentration?
Since concentration risk acts as a force multiplier, identifying and mitigating it is one of the most critical steps in building true supply chain resilience. Use these questions to challenge your current approach.
- Could greater supply chain transparency become a competitive advantage? How can we turn our “black box” supply chains into transparent ecosystems that enable smarter, more resilient sourcing?
- If one of our primary sourcing regions went offline tomorrow, what is our contingency plan? Have we run scenarios to understand the operational and financial impact?
- Are we using technology to move from static risk plans to dynamic, responsive systems? Could AI or IoT give us the real-time visibility needed to reroute components when a disruption hits?
