Profs. Sangho Chae, Warwick Business School, Igor Filatotchev, King’s Business School, King’s College London, Seongtae Kim, School of Business, Aalto University, and Byung‑Gak Son, Bayes Business School, explore how growing complexity and geographical dispersion of global supply chains may pose significant challenges in ensuring environmental, social, and governance (ESG) standards for Multi-National Enterprises.

The Structure of Global Supplier Networks: How they may quietly shape corporate ESG controversies by COBS Editor Mallika Rahane.

Related research: Chae, S., Filatotchev, I., Kim, S. et al. Small worlds within global supply chains: implications for multinational enterprises’ environmental, social, and governance controversies. J Int Bus Stud 56, 807–818 (2025). https://doi.org/10.1057/s41267-025-00796-w

The Invisible Side of Globalisation

Modern supply chains are rarely linear systems. They stretch across continents, linking firms to hundreds, sometimes thousands, of suppliers, subcontractors and production sites.

For multinational corporations, this global reach brings obvious advantages – lower production costs, access to specialised suppliers & expertise and proximity to different markets. 

However, beneath this stillness of efficiency lies a latent tension. 

The wider the supply chains stretch geographically, the more difficult it becomes to see what is actually happening inside them. Sustainability policies written at global headquarters in London, Paris or New York do not always trickle down to factories in distant regions. And between those policies and their implementation lie differences in language, legal structures, cultures and monitoring capabilities. 

In addition, geographically dispersed global supply chains tend to increase coordination complexity, which makes it difficult for an MNE (Multi-National Enterprises) to manage suppliers’ adoption and compliance with its ESG best practices.

Resultantly, ESG controversies often emerge from somewhere deep within the supplier network, even when not by the corporation itself. However, public perception rarely draws clean boundaries between the corporation and its supply chain. The scandal travels upstream. The reputational damage does too. 

When Distance Creates Ethical Blind Spots

Furthermore, Prof. Sangho Chae and his fellow researchers posit that geographical dispersion creates what might be called ethical distance.

As suppliers become scattered across multiple countries, coordination becomes increasingly difficult. Information moves more slowly. Monitoring weakens. And sustainability standards may be interpreted differently across contexts. The challenge is not simply physical distance. It is organisational complexity.

A company may have robust ESG policies on paper; but enforcing them across layers of suppliers is a different ball-game altogether. Lower-tier suppliers – suppliers of suppliers – may operate far from the focal company’s direct visibility. In such environments, opportunistic behaviour can quietly flourish. 

As such, the researchers suggest that geographically dispersed supply chains increase the probability of supplier-induced ESG controversies. Their empirical analysis of Fortune 500 U.S. firms between 2010 and 2019 supports this argument. Companies with more geographically dispersed suppliers experienced significantly higher levels of ESG controversies linked to suppliers. 

Complexity itself becomes a governance problem.

The “Small World” Effect

Chae et al introduce an elegant idea borrowed from network theory: small-world networks. The concept refers to networks where actors remain closely connected despite scale.

Small-worldness describes an MNE’s global supply chain with high local clustering and short average path length to other MNEs, creating a network where information exchange and social norms around ESG practices are fostered.

In these networks, clusters of firms interact frequently, while pathways connecting firms remain relatively short. Therefore, information travels more efficiently, and behaviours become more visible to others within the network. 

The paper argues that this structure matters enormously for ESG governance. Within tightly connected networks of firms and suppliers, unethical practices become harder to hide. Information circulates more quickly. Peer scrutiny intensifies. Firms gain greater visibility over supplier behaviour, while suppliers themselves become more aware that misconduct may trigger reputational or commercial consequences. 

Such connectedness fosters community governance, promoting shared norms of acceptable behaviour across supply chain members. In other words, the network begins to regulate itself.

Interestingly, the authors found that an MNE’s supply chain small-worldness weakens the positive relationship between the geographical dispersion of its suppliers and supplier-induced ESG controversies.

Firms embedded in stronger small-world networks experienced fewer ESG controversies despite operating globally dispersed supply chains. The issue may not simply be how global a supply chain becomes, but how connected, tight-knit and visible the relationships remain within it.

Beyond Contracts: When reputation becomes networked

Traditionally, multinational firms have relied on formal governance tools such as supplier contracts, compliance systems and monitoring mechanisms to manage ESG risks. Yet the study suggests that contracts alone may struggle to keep pace with the growing complexity of global supply chains. As suppliers spread across jurisdictions with different legal systems, cultures and standards, visibility weakens and ethical risks become harder to detect.

This is where network structures begin to matter. Highly connected supply chains strengthen information flows, increase peer visibility and allow sustainability norms to diffuse more naturally across firms. The paper therefore shifts attention away from isolated buyer–supplier relationships toward broader network dynamics.

This matters because reputational risk itself has become deeply networked. Today, stakeholders increasingly hold corporations accountable not only for their own actions, but also for the practices embedded within their supply chains. Consequently, ESG controversies travel rapidly across networks, shaping investor confidence, public trust and corporate legitimacy. The supply chain is no longer a hidden infrastructure operating quietly in the background; it has become part of the corporation’s public identity. 

The Human Side of Network Structures

What makes this research especially engaging is that it transforms what initially appears to be a technical discussion into something deeply human. Terms such as “small-worldness” or “network clustering” may sound abstract. Yet beneath them lies a simple insight: relationships matter.

The study essentially argues that ethical governance becomes easier when firms remain socially and informationally connected to one another. Isolation weakens accountability. Connection strengthens it. This creates an interesting contradiction within globalisation itself.

Modern business often celebrates decentralisation, outsourcing and scale. Yet sustaining ethical standards may require rebuilding forms of closeness within these enormous systems – not necessarily geographical closeness, but relational closeness.

In that sense, the research quietly reframes sustainability not merely as a compliance issue, but as a question of organisational architecture. 

When Visibility Becomes Governance

This research offers important insights for multinational firms managing increasingly complex global supply chains. Simply reducing the geographical spread of suppliers may not always be commercially realistic, especially when firms rely on global sourcing advantages. However, the study suggests that the structure of supply chain relationships can significantly influence ESG outcomes. 

For managers, it may therefore be valuable to strengthen interconnectedness across supplier networks rather than focusing only on isolated contractual oversight. Encouraging stronger relationships between suppliers, increasing visibility across supply chain tiers, and building closer collaborative ties may help reduce ethical blind spots within dispersed networks. 

The findings also resonate beyond corporations themselves. ESG controversies within global supply chains often affect workers, communities and environments in regions where local stakeholders possess limited power or visibility. In this context, stronger supply chain governance may contribute not only to reputational protection for firms, but also to broader social accountability across global business systems.

Useful links:

• Link up with Sangho Chae, Igor Filatotchev, Seongtae Kim and Byung‑Gak Son and on LinkedIn
• Read a related article: Can sustainable business survive global trade wars?
• Discover Warwick Business School , United Kingdom
• Apply for the Warwick MBA.

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