Domestic supplier concentration and the internationalization of emerging-market SMEs

Emerging-market small and medium-sized enterprises (SMEs) increasingly pursue internationalization to overcome domestic constraints and access global value chains. However, their internationalization remains uneven, partly due to overlooked structural conditions such as domestic supply chain configurations. This study investigates how domestic supplier concentration influences SME internationalization. Drawing on the liability of origin (LOR) perspective within the context of geopolitical tensions, we propose that reliance on a narrow domestic supply base embeds home-country institutional weaknesses into emerging-market SME internationalization through capability disadvantages and legitimacy disadvantages. Unlike large firms, emerging-market SMEs lack resources to diversify suppliers, rendering them vulnerable to origin-related disadvantages when foreign stakeholders scrutinize their supply chains. Using a sample of 876 Chinese SMEs during 2017-2023, we find that domestic supplier concentration has a negative impact on internationalization of emerging-market SMEs, and the negative effect is attenuated by higher foreign ownership of the focal firm, but amplified by stronger regional government intervention and by the focal firm’s membership in a sanctioned industry. Our study contributes to SME internationalization and supply chain management research by introducing domestic supplier concentration to the internationalization literature as a nuanced critical antecedent, and by reconceptualizing supplier concentration as a context-dependent liability.