SUPPLIER CONCENTRATION

The risk of limited sourcing locations

SUPPLIER CONCENTRATION

HISTORIC globalization trends have driven areas of supplier concentration

This chapter introduces the Global Supplier Concentration Index, calculated using OECD Input-Output tables and the Herfindahl-Hirschman Index (HHI), a widely accepted measure of market concentration. The index evaluates how concentrated a country or industry’s foreign supply chain is across all tiers. A high HHI score suggests that supply is dominated by a small number of countries or firms, increasing the risk of disruption. A low score indicates a more diversified sourcing footprint, offering greater resilience.

GEOGRAPHIC AND SECTORAL CONCENTRATION PATTERNS

Over time, booming emerging economies such as China, India, and Vietnam have drawn significant foreign investment. As a result, global manufacturing, commodities, and IT services have become deeply concentrated in these markets.

China, for example, dominates global production in electronics, solar panels, and apparel, with an export value of over $3.3 trillion in 2023, much of it driven by highly clustered supply hubs such as those in Guangdong, Zhejiang, and Jiangsu. This clustering can be a strength, but also a weakness, such as seen during droughts in Sichuan in 2022, which devastated power supply across several industries, impacting the likes of Toyota, Tesla, and Apple.
India leads back-office IT services, with over 55% of global BPO and IT outsourcing share, creating a risk hotspot for companies dependent on tech support, software maintenance, or data processing services.
Vietnam has become a critical hub for textiles and consumer electronics, attracting brands seeking China alternatives but creating a similar overreliance on new, still-developing infrastructure.

Economies may be built on sectoral dominance, but there comes a point where specialization and saturation present a risk.

UNEXPECTED HIGH-RISK MARKETS: CANADA AND AUSTRALIA

While most of the top 10 aligns with APAC and Latin America, two outliers Canada and Australia highlight a concentration risk stemming 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, energy and natural resource exports are highly concentrated. A few firms (e.g., Suncor, Cenovus) dominate oil, gas, and mineral production. Transportation bottlenecks, limited pipelines and port capacity, create single points of failure. A local disruption (e.g., wildfires, pipeline outages, strikes) can ripple through global markets.
Similarly, Australia is a top exporter of iron ore, LNG, and rare earths, with production concentrated in the hands of a few major players like BHP and Rio Tinto. These commodities are crucial inputs for construction, steelmaking, and clean energy, so disruptions can stall downstream industries globally.

Both cases illustrate that concentration isn’t only about sourcing from emerging markets, it can also stem from industrial monopolies and infrastructure chokepoints in highly developed economies.

MEXICO: HIGH RANKING, HIGH RISK, HIGH OPPORTUNITY

Perhaps most notably, Mexico ranks as the highest-risk country in the index for supplier concentration. This reflects its rapid rise as a nearshoring destination for US companies seeking to diversify away from China. However, as demand surges, Mexico’s infrastructure and energy grid are under pressure, especially in border states and industrial zones like Monterrey, Tijuana, and Querétaro.

SECTOR IMPLICATIONS

Taking an overarching view of the industries, those most impacted correlate with the analysis of the country view regions where perishable, commodity-driven, high-volume, or high-value sectors are dominant. This highlights how sourcing within these country-sector pairings must consider resilience strategies.

MEXICO

HIGH-VOLUME and
HIGH-VALUE supply chains are at HIGH-RISK

CANADA &
AUSTRALIA

SOURCING AND SUPPLY TACTICS

Concentration risk often lurks beyond Tier 1, where visibility drops and hidden dependencies multiply. Mapping the full supplier network is critical to identify hidden bottlenecks or dependencies that could amplify the impact of disruption. Transparency allows procurement teams to plan and act when needed.

Nike’s Sustainable Business and Innovation Supply Chain Map discloses key suppliers to mitigate geographic risk. Nestlé goes further, mapping cocoa and coffee to the farm level to improve traceability. These efforts turn black-box supply chains into transparent ecosystems, enabling more resilient sourcing strategies through smarter diversification and proactive engagement with supply chain partners.

If identifying concentration risk is step one, step two is contingency planning. Where there is risk, procurement should up due diligence, understanding footprint overlap, backup capabilities, and dependency networks.

This insight fuels scenario modeling and contingency plans, moving response from reactive to predictive in an ideal world. Amazon is a leader here, using analytics to forecast disruptions and trigger pre-emptive actions.

For many, “predictive” is a longer-term goal. High-tech systems are mostly reserved for those with the budgets to build or the logos sought by enabling suppliers. Buyers should be pragmatic, targeting high-risk areas.

Ultimately, supply chains are a huge collection of data points. So, it’s logical that technology is now core to risk management.

Solutions once considered futuristic, such as AI, blockchain, digital twins, and IoT, are becoming practical, accessible tools for monitoring, prediction, and response. Tech giants like IBM are bringing solutions to market to compete with specialists in the space.

Used well, technology transforms supply chains from static structures to dynamic, self-healing systems. Used poorly, it’s just another data dashboard. Medtronic, for example, uses AI and IoT to track inventory and reroute components instantly when disruptions hit, vital in life-critical sectors.

3 | TECH-ENABLED RESILIENCE: FROM
STATIC PLANS TO SMART SYSTEMS

2 | DUE DILIGENCE AND SCENARIO PLANNING

1 | MAP SUPPLY CHAINS TO CREATE TRANSPARENCY

SOURCING AND SUPPLY TACTICS

Supplier concentration is not a standalone risk - it’s a force multiplier. No matter the risk - from geopolitics to cost volatility - the impact of any disruption is worsened if too much of your supply comes from too few suppliers or geographies.