Resilience of GVC Suppliers in Politically Unstable Regions: The Roles of Governance and Trust

Abstract

Supplier firms in the Global South face compounded risks from political instability that challenge their ability to maintain participation in global value chains (GVCs). While resilience is increasingly acknowledged as a critical capability, it remains unclear how suppliers develop resilience when conventional GVC governance strategies, often grounded in institutional stability, prove insufficient. This gap is especially pronounced in knowledge-intensive service sectors like software development, where codification, coordination, and inter-firm trust are central but often disrupted by political instability. This study examines the resilience of GVC suppliers operating in politically unstable regions of South Asia, particularly India and Pakistan. It focuses on the role of governance mechanisms—such as codification, managing complexity, and supplier capabilities, on supplier resilience. It also investigates how trust moderates these relationships. Drawing on Transaction Cost Economics (TCE) and the Dynamic Capabilities View (DCV), we argue that these governance mechanisms function not only as efficiency enablers but also as dynamic governance adaptations that suppliers actively mobilize to survive and adapt. A quantitative analysis using partial least squares structural equation modeling (PLS-SEM) was conducted on survey data collected from 100 software firms. The results show that task codification and management of task complexity enhance supplier resilience. It further reveals that trust negatively affects the links between task codification and resilience, challenging the conventional assumption that trust uniformly strengthens GVC relationships. The core theoretical contribution of this study lies in extending TCE and DCV by showing how resilience is enabled through external governance adaptation and by rethinking trust as a conditional, context-dependent mechanism rather than a universal good.