Enterprise Risk Management as a Strategic Governance Mechanism in IT-Enabled Transnational Supply Chains

Abstract

As organisations increasingly face the need to compete for market share by building highly integrated global supply chains, governance of these complex relationships becomes a major strategic challenge. Research reporting high failure rates for collaborative alliances with supply chain partners makes formation of global supply chains a high risk venture. This study examines the influence of strategic ERM processes on improving supply chain capability while mitigating risks. ERM has become a major strategic management focus and researchers suggest this momentum arises from the need for governance mechanisms that counter the ineffectiveness of government intervention and cooperation in cross-border relationships. We survey 207 organisations on their perceptions of their own ERM processes and a specific supply chain partner’s absorptive capacity, B2B e-commerce business risk, and the global business risk associated with that partner relationship. The results support theorised relationships positing that stronger ERM promotes higher levels of partner absorptive capacity, lower B2B risk, and lower associated global business risk. Results further show that associated global business risk is reduced through managing and controlling partner absorptive capacity and B2B risk. Additional analyses show that stronger ERM is associated with partners being from countries with cultural traits conducive to strong supply chain performance.

Keywords: enterprise risk management, managerial control systems, control risk, absorptive capacity, B2B e-commerce, IT

JEL Classification: M4