Supply chain penetration: A new instrument of warfare?

On the afternoon of Sept. 17, around 3:30 pm local time, thousands of pagers used by members of Hezbollah in Lebanon and parts of Syria simultaneously exploded. Preliminary reports indicated at least 12 deaths and over 4,000 injuries, including injuries to the Iranian Ambassador to Lebanon. The following day, Sept. 18, a second wave of explosions involving walkie-talkies and radio communication devices killed at least 20 and injured 450 people.

A supply chain vulnerability

The subsequent investigation uncovered critical insights linking the explosion to a compromised supply chain. In February 2024, Hezbollah leader Hassan Nasrallah instructed members to switch from mobile phones to pagers, citing the risk of Israeli penetration into their cellular networks. Hezbollah procured over 3,000 AR924 model pagers from Gold Apollo, a Taiwanese company. For security reasons, Hezbollah had long relied on pagers for communication.

Gold Apollo stated on Sept. 18 that these pagers were not produced directly by them but by a subcontractor, BAC Consulting in Hungary. This revelation raised suspicions. According to reports from The New York Times, BAC was one of three shell companies linked to Israeli intelligence. This supported the hypothesis that the supply chain was infiltrated during production or logistics, with explosive materials, likely PETN (Pentaerythritol tetranitrate) and a remote detonation trigger, inserted into the devices.

This type of vulnerability in the supply chain highlights a new mode of conflict where compromised production or distribution processes can lead to direct military or political consequences, without the need for traditional weapons or confrontation.

Supply chain penetration as a new mode of warfare

The immediate impact of this “supply chain war” was the disruption of Hezbollah’s communication network, severely undermining its operational capabilities. In the long term, it sends a powerful psychological message: “We can reach you at any time,” as noted by John Miller, CNN’s chief law enforcement and intelligence analyst. This threat undermines Hezbollah’s morale, hampers its recruitment efforts, and potentially weakens its long-term operational capabilities.

More alarming than the Lebanon-Israel conflict is the precedent set by Israel for future warfare: the penetration of critical equipment production and supply chains. This concept extends beyond pagers to any electronic device—walkie-talkies, cell phones, computers, watches, or headphones—all could be co-opted into precise instruments of targeted attacks or indiscriminate harm. Given the pervasive nature of electronic devices and the interconnectedness of global supply chains, preventing such risks is increasingly challenging.

The complexity of globalized production makes precision risk assessment difficult. Should such techniques become widespread, they will fundamentally alter the global security landscape, specifically the perception of supply chain security and resilience.

Supply chain penetration: A multifaceted perspective

The Lebanon incident serves as a stark reminder of the complexities and risks inherent in modern supply chains, prompting a detailed examination of the concept of supply chain penetration. But what does supply chain penetration entail? Viewed from various perspectives, it implies different forms of influence and control within the production and distribution processes that can have far-reaching consequences.

From the buyer’s perspective, mitigating risks associated with supply chain penetration begins with ensuring comprehensive, end-to-end visibility. This requires adopting a risk-based approach when selecting cooperators and integrating advanced technological solutions to enhance transparency. Blockchain technology, for example, can provide secure, traceable transactions across the supply chain, significantly reducing the potential for unauthorized tampering. Additionally, implementing multi-layered inspection processes including independent third-party audits at critical stages can help identify vulnerabilities early, providing the buyer with timely information to address risks before they escalate.

For suppliers, there exists both an opportunity and a responsibility regarding supply chain penetration. Suppliers are uniquely positioned to access and influence the entire production and distribution process, which offers substantial benefits. Effective supply chain penetration can enable suppliers to streamline operations, ensure consistent quality, and enhance their control over logistics. Such benefits, however, come with the temptation and risk of unethical practices, particularly in cases where suppliers might deliberately embed monitoring systems or alter hardware to gain intelligence advantages. While such actions are undoubtedly illegal and unethical, they present significant benefits, including real-time data access, deeper intelligence about buyers or end-users, and the potential to manipulate user behavior or system functionality. These considerations raise profound ethical concerns regarding supplier responsibility and underscore the urgent need for strict international regulations governing supply chain operations.

At a global level, the Lebanon incident raises significant questions about oversight and regulation of supply chain penetration. A major vulnerability of global supply chains lies in their fragmented nature: key processes such as raw material extraction, production, assembly, and sales often occur in different geographic locations. This complexity makes achieving full supply chain control and penetration exceedingly challenging, thereby increasing associated risks. From a supply chain management perspective, there are inherent challenges in managing costs, quality, and security across complex, multinational supply chains. Furthermore, the dual trends of globalization and decoupling bring additional obstacles, including political conflicts, trade barriers, and military confrontations. The inability to control the entirety of the supply chain across multiple borders increases the risk of supply chain penetration-based attacks—so-called “supply chain warfare.”

To mitigate such risks, there is an urgent need to establish international agreements and standards that can regulate supply chain penetration. Such agreements should foster transparency, requiring suppliers to fully disclose relevant information and establish accountability at every stage of the supply chain. A key question remains: how can these regulations be effectively implemented, and to what extent can they prevent the future weaponization of supply chains? Addressing these questions is essential to safeguard against the use of supply chains as tools of conflict, and to maintain the security of both national and international economic systems.

Regional supply chain penetration

In response to the dual trends of deglobalization and decoupling, many companies are adopting strategies like backshoring, nearshoring, and friendshoring. These approaches not only aim to reduce supply chain uncertainties but also increase supply chain penetration. A prime example of this shift can be seen in Huawei’s transformation in its supply chain strategy.

Before 2018, Huawei was dependent on foreign-made chips and had limited penetration in its supply chain. Following the imposition of sanctions, Huawei embarked on an ambitious journey toward greater supply chain autonomy. Today, Huawei’s flagship foldable smartphone features over 90% Chinese-made components, effectively achieving a near-complete domestic supply chain.

Huawei’s approach involved loosening supplier certification requirements, increasing procurement from domestic suppliers, and forming long-term, stable partnerships to enhance the quality and market competitiveness of local suppliers. Additionally, Huawei invested in suppliers, thus establishing a strong domestic supply chain base.

These supply chain integration strategies have not only enhanced Huawei’s supply chain penetration but have also driven product innovation and fostered a sense of cultural confidence. The success of Huawei’s localized supply chain penetration provides valuable insights for other companies considering regionalized supply chains. Companies can mitigate risks through strategic supply chain integration, ultimately boosting innovation and autonomy. These insights underscore the importance of adapting supply chain strategies to the evolving dynamics of global trade while also safeguarding against the risks posed by potential penetration.

About the authors

Peter Shi, Hedy Dou, and Miles Yang are affiliated with the Macquarie Business School Macquarie University, Australia, Macquarie Business School, Macquarie University, Australia

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