Structure of global buyer-supplier networks and its implications for conflict minerals regulations

TL;DR

This paper analyzes global buyer-supplier networks revealing scale-free structures and community formations, and discusses how these networks influence the spread of conflict minerals, suggesting targeted regulations could reduce their proliferation.

Contribution

It uncovers the scale-free topology and community structures of global inter-firm networks and links these features to conflict mineral proliferation, proposing targeted regulatory strategies.

Findings

Networks have a power-law degree distribution with an exponent of 1.5.

Shortest path length in networks is around six.

Regulations on key firms could significantly reduce conflict mineral use.

Abstract

We investigate the structure of global inter-firm linkages using a dataset that contains information on business partners for about 400,000 firms worldwide, including all the firms listed on the major stock exchanges. Among the firms, we examine three networks, which are based on customer-supplier, licensee-licensor, and strategic alliance relationships. First, we show that these networks all have scale-free topology and that the degree distribution for each follows a power law with an exponent of 1.5. The shortest path length is around six for all three networks. Second, we show through community structure analysis that the firms comprise a community with those firms that belong to the same industry but different home countries, indicating the globalization of firms' production activities. Finally, we discuss what such production globalization implies for the proliferation of conflict minerals (i.e., minerals extracted from conflict zones and sold to firms in other countries to perpetuate fighting) through global buyer-supplier linkages. We show that a limited number of firms belonging to some specific industries and countries plays an important role in the global proliferation of conflict minerals. Our numerical simulation shows that regulations on the purchases of conflict minerals by those firms would substantially reduce their worldwide use.