Set-SOPSite does not apply sharing setting

Question

I'm trying to set the Sharing setting of a site in a provisioning script. After creating a Team site (classic experience) site, I want to set the sharing to new and existing users we have set in the Sharing settings of the admin center. The tenant is set to disabled, not sure if this has an impact, we want external sharing to be off except for a few limited sites at this point.

After creating the site via PowerShell, I try executing Set-SPOSite -Identity $siteURL -SharingCapability ExternalUserSharingOnly. It doesn't throw any errors, but it doesn't set the appropriate value, still reads disabled in PowerShell and is disbaled in the admin center.

What is happening?

Answer 1

From your description, external sharing is disabled at organization level.

Quote from Microsoft:

To allow external sharing on any site, you must allow it at the organization level.

---------------------------Update--------------------------------------

Please try following PnP powershell to set external sharing at tenant level:

Connect-PnPOnline -Url https://tenant.sharepoint.com -Credentials (Get-Credential)
  
Set-PnPTenant -SharingCapability $ExternalUserAndGuestSharing

Reference:

https://docs.microsoft.com/en-us/powershell/module/sharepoint-pnp/set-pnptenant?view=sharepoint-ps