MAKERS · that the next industrial revolution – a focal point for the MAKERS project - has the potential “to restore the competitiveness” of developed economies (OECD 2017a,

D4.2: Reshoring trends and drivers of shorter value chains

MAKERS

DELIVERABLE 4.2

PAPER ON RESHORING TRENDS AND DRIVERS OF

SHORTER VALUE CHAINS

Task 4.1: Review existing literature and evidence on reshoring and onshoring trends

Coordinated by ASTON

Authors:

Diletta Pegoraro, Birmingham Business School, The University of

Birmingham, [email protected]

Lisa De Propris, Birmingham Business School, The University of

Birmingham, [email protected]

David Bailey, Aston Business School, Aston University,

[email protected],respectively. Contact:

Ref. Ares(2017)3583540 - 15/07/2017

mailto:[email protected]




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LIST OF CONTENTS

1. INTRODUCTION: PAPER CONTENT AND STRUCTURE ........................................................- 2 -

2. REVIEW OF EXISTING LITERATURE .......................................................................................- 8 -

2.1 CONCEPTUAL MODELS FOR RESHORING ........................................................................- 9 -

2.2 THE NATURE OF RESHORING ......................................................................................... - 14 -

4. CUSTOMERS’ REACTIONS TO RESHORING DECISIONS ................................................. - 19 -

5. INSTITUTIONS AND RESHORING ......................................................................................... - 21 -

6. RESHORING AND FINANCIALIZATION ................................................................................. - 23 -

7. RESHORING AND THE HIDDEN COST OF OFFSHORING ................................................. - 24 -

7.1 RESHORING AND TRANSPORTATION & LOGISTICS ..................................................... - 24 -

8. RESHORING AND SUSTAINABILITY ..................................................................................... - 26 -

9. RESHORING AS LOCATION DECISIONS ............................................................................. - 27 -

10. A MAKERS RESEARCH AGENDA ......................................................................................... - 30 -


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1. INTRODUCTION: PAPER CONTENT AND STRUCTURE

The challenges of globalisation and technological change for Europe have been

much discussed and analysed. Yet there are major opportunities which the EU can

exploit if it responds appropriately (Bachtler et al, 2017). Indeed, the OECD argues

that the next industrial revolution – a focal point for the MAKERS project - has the

potential “to restore the competitiveness” of developed economies (OECD 2017a, b),

and that this is where policy should be focused. The debates over reshoring should

be seen as part of this challenge and opportunity, with implications for policy. For

decades, ‘offshoring’ and ‘outsourcing’ have transformed a range of previously

nationally based manufacturing sectors into global networks of design, production

and distribution across global value chains coordinated by major Original Equipment

Manufacturers (OEMs). As manufacturing activities had shifted to low-labour cost

locations, high-end design, R&D and product development largely remained

anchored in high-cost and high knowledge-intensive home economy locations.

However, most recently the weaknesses of and risks inherent in such global value

chains (GVCs) have been exposed, stimulating efforts to rethink their nature (see

Gereffi et al, 2005) – thus raising possibilities to reshore some manufacturing

activities to ‘home’ countries. A combination of labour costs making up a lower

overall share of total costs, along with wider changes in some cases such as more

competitive exchange rates (e.g. in the case of sterling), increased transport and

energy costs, rising wages in key areas of China, and a greater awareness of supply

chain resilience have together contributed to a ‘perception change’ in some

underlying business ‘fundamentals’, in some manufacturing sectors at least. This

perceived potential for some supply chain relocalisation also links in with the trend of

‘servitisation’ of manufacturing and the shift to a hybrid model where manufacturing

and services are increasingly intertwined, as explored in MAKERS. As will also be

seen below, elements of the literature have also highlighted limits as to how far this

reshoring can go and these raise some important questions and issues over the

possible role for industrial policy in the context of new forms of manufacturing (again

another aspect of the MAKERS project).


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This business environment gives room for new business models, among which

exists reshoring. Reshoring is the reverse of offshoring (Gray et al., 2013), and it

involves a previous delocalised activity which has been strategically and voluntary

repositioned in the firm’s home country (Fratocchi et al., 2014). Therefore, reshoring

is a location decisions (Ellram, 2013) and to understand it fully, three main

disciplines are involved: International Business (IB), Economic Geography (EG) and

Supply Chain Management (SCM).

This MAKERS Paper surveys some 50 academic papers. They have been analysed

so as to chart what has been studied, discovered and analysed in the reshoring field

so far. The research has been carried out under the lenses of International Business

(IB), Economic Geography (EG) and Supply Chain Management (SCM). The papers

have been divided according to their main field. At the end of the paper, table 1

presents which papers support further studies in the selected disciplines, while table

2 shows the pull and push factors, also divided by IB, EG and SCM. A second

categorisation of papers has also been undertaken, according to the nature of the

drivers, if external or internal tot the firms. A final section of the paper outlines a

MAKERS research agenda on reshoring. By way of introduction, studies on

reshoring have growth in recent years, as seen in diagram 1 below.

Diagram 1: Articles publishing on reshoring since 2000

Source: author’s elaboration


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A blibliographical analysis by the authors shows a range of terms being used under

the general ‘reshoring’ catch-all term (see diagram 2 below).

Diagram 2: Terms used for describing and analysis the ‘reshoring’

phenomenon


Not surprisingly perhaps, the major geographical focus for work on reshoring has

been in ‘advanced’ countries in Europe and the United States – see Diagram 3

below.


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Diagram 3: Which countries have been the focus in reshoring studies?


In terms of disciplines of study, the dominant lens of study has been through the

Supply Chain Management (SCM) field, followed by International Business (IB) and

then SCM/IB, followed by Economic Geography (EG) as seen in diagram 4 below:


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Diagram 4: Academic fields of study of reshoring


Table 2 at the end of this paper outlines firm’s endogenous and exogenous ‘push’

and ‘pull’ reshoring factors divided by EG, IB and SCM fields. This can also be

visualised in Diagrams 5 and 6 below which are word clouds developing through our

bibliometric study of the reshoring literature, and the use of Nvivo to categorise

factors.


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Diagram 5: Word Cloud of Push Factors for Reshoring


Diagram 6: Word Cloud of Pull Factors for Reshoring



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2. REVIEW OF EXISTING LITERATURE

The most recent literature review on reshoring is provided by Wiesmann et al.

(2017). In their systematic study, a content analysis was used to identify leading

factors of reshoring decisions. According to Wiesmann et al. (2017), drivers can be

itemised across five dimensions: global dynamics, host country features, home

country features, supply chain characteristic, and firm-specific factors. Despite the

research considering only 22 peer reviewed academic papers, their work supported

the proposition by Moradlou et al. (2017); i.e. that reshoring is not an easy decision,

but has to be strategically contemplated. In the same vein, Kinkel and Maloca

(2009), as well as Moradlou et al. (2017) confirmed that reshoring is a second step

for adjusting a previous decision to offshore. In conclusion, Wiesmann et al. (2017)

argued for a more all-encompassing theory for a sound understanding of a

company’s internationalisation dynamic and its geographical involvement. Therefore,

the idea of a synthesis between SCM, IB and regional economic studies fields is

supported.

The reshoring literature was previously studied by Stentoft et al. (2016c). In their

work, a critical literature review was carried out based on 20 papers published

between 2009 and 2016. They classified reshoring motives in seven ‘clusters’: cost,

quality, time and flexibility, access to skills and knowledge, risk, market and other

factors. Their work provides a classification of items, without much of an effort to

analyse implications on territories or overarching issues. Despite this limitation,

Stentoft et al. (2016c) nevertheless made a useful contribution in noting local and

regional government should be interested in a reshoring policy agenda as it could

enhance the territorial industrial perspective, this emphasising the need for a Multi-

Level Governance perspective. This issue of governance and policy was supported

by Srai and Ané (2016), who argue that reshoring has to be a priority for policy

makers. In so doing, Srai and Ané (2016) argue that institutions should have a

primary role in supporting companies which decide to reshore manufacturing activity.

Their research is based on a survey of 59 French and 35 British companies. The

results highlight the relevance of local brands and quality features as drivers for

reshoring strategies. Unfortunately, specific sectors were not identified in their work,

which can be seen as a major limitation of the study. Moreover, to enhance the


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results and policy suggestions, the collection of primary data through case studies is

needed. Of note, however, the paper calls for the studying of reshoring through

different lens, such as the international business and supply chain management

literature. Given that institutions can be seen as key actors in the reshoring process,

a model with extra-firm players should be considered. In this case, a GPN framework

is appropriate.

2.1 Conceptual Models for Reshoring

In an editorial paper, Tate and Bals (2017) presented six papers on what they term

‘rightshoring’ and proposed a framework for classifying ‘shoring’ decisions. Built on

the previous works of Jahns et al. (2006) and Foerstl et al. (2016), the theoretical

framework proposed by Tate and Bals (2017) has two dimensions (Figure 1) :

governance and location. The vertical axes represents Onsourcing/Outsourcing

strategies, while the horizontal axis represents Offshoring/Reshoring strategies.

Moving horizontally, the location changes from home to abroad, while vertically the

governace relation moves from captive to market. Even if the authors did not

excplicitly identify the possibility, this framework could allow the use of a Global

Value Chain analysis, for example in if the firm is shifting form the use of contractors

to an offshored outsourced partner. Moreover, the framework offers the scope for a

geographical deminesion to analysis rather than one which strictly focuses on the

dynamic of the firm, and whereby governments and other policy institutions could be

involved.


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Figure 1 - Tate and Bals (2017) conceptual framework

Source: Tate and Bals (2017).

In a related vein, Foerstl et al. (2016) propose a conceptual framework for analysing

reshoring decisions based on a systematic grey literature review (see Figure 2),

which has was further developed by Bals et al. (2016). In so doing, Foerstl et al.

(2016) create a framework with eight different combinations, according to the

position on the axes: Domestic Sourcing; Nearshore Sourcing; Offshore Sourcing (if

the relationship is based on buy-to-market); Domestic Inhouse Production;

Nearshore Inhouse Production; and Offshore Inhouse Poduction (if the

manufacturing components are under the company’s ownership); Domestic

Partnershipl;Nearshore Partnership; and Offshore Partnership (if the governance

dimension is hybrid).


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Figure 2 - Foerstl et al. (2016) coneptual framework

Source: Foerstl et al. (2016)

With this conceptual framework, the authors provide a model for addressing

decisions made by managers and policy makers alike. According to this schema,

reshoring takes place when there is a leftward movement on the horizontal axe,

which represents the location dimension. This conceptual model gives room for a

GVC/GPN analysis of reshoring. Both the papers suggest several Further Research

Agendas (FRA) and an investigation of the reshoring nature is among them. Is the

reshoring an adjustment to a ‘wrong’ previous decision or is it a strategic choice for

enhancing the company’s value creation? More case studies and robust data are

needed to analyse such questions. Linked to this, Presley et al. (2016) propose a

conceptual framework based on the balanced scorecard. The authors enhance the

instrument by adding a financial, quantitative and qualitative metrics. This has been

developed through an activity based costing (ABC), multi attribute decision making

and utility theory. The authors based their instruments on a literature review on

reshoring.

Developing the strategy dimension of the literature, Fratocchi et al. (2016) propose a

conceptual framework coupled by an empirical study on the reshoring’s drivers. The

paper aims to provide a guide as to how a reshoring strategy should be


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implemented, which factors could influence the decision and the steps to follow. As a

check-list, the model has been applied empirically, by translating the conceptual

results into empirical case studies. The explorative approach finds that the scope of

relocated activity (core or not), geographical destination, nature of decision (strategic

vs serendipity) and adopted governance structure influences the Back-Reshoring

decisions. Their work has a number of useful features. Firstly, the paper introduces

the novel term ‘Back-Reshoring’ which is a new one in the field. Second, the paper

highlights the need for a GPN/GVC analysis for an in-depth understating of the type

of governance, eventual upgrading and for individualizing where the value resides.

Finally, it suggests the need to identify the type of entry model in the home country

and the role of HQ in relation to subsidiaries.


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Figure 3 - Interpretative Framework by Fratocchi et al (2016)

Source: Fratocchi et al (2016)

From a more industrial economics / industrial organisation perspective, Xiaole and

Fuqiang (2014) present a mathematical modelling of reshoring decision. The authors

use a Cournot Competition Model for developing a sourcing game between efficient

and responsive sourcing. The result shows that if the market size is shrinking or the

volatility of demand or sourcing costs increase, reshoring is preferred than remaining

overseas. Although this paper is one of the first of its kind, it lacks empirical

investigation and a more robust analysis of the simultaneity of both strategies

(reshoring or staying) is suggested.

In their conceptual paper, Gray et al. (2013) contribute to the reshoring debate by

laying down a series of assumptions. First and foremost, and in contrast with other

such as Tate and Bals (2017), they note that reshoring is a location decision, and


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ownership or governance are not relevant issues. The authors also propose a

conceptual framework, which draws on both International Business and Supply

Chain Management theories. In this way, reshoring could be represented in four

dimensions: In-house Reshoring, Reshoring for Outsourcing, Reshoring for

Insourcing and Outsourced Reshoring. These four strategies are deeply connected

to location advantages, proposed and illustrated by IB theorist such as Hymer,

Dunning, Buckley and Casson. Second, reshoring strategies heavily influence the

social and environment dimension, so a single analysis under the supply chain lens

is not enough to drawing a picture of this phenomenon. The involvement of

multidisciplinary fields is more useful for understanding better reshoring decisions.

Finally, Gray et al. (2013) on the one hand shed light on the possibility for reshoring

to boost stagnant western economies, by providing new jobs and more innovation in

manufacturing. On the other hand, if the trend is to relocate manufacturing in

proximity to final consumer market, in the future, the firms will face the issue of

moving back manufacturing to those countries which are emerging today as their

middle class expands. Therefore, the authors suggest that an ambidexterity should

be learnt by firms as soon as possible.

2.2 The Nature of Reshoring

In an influential study, Gray et al. (2017) analyse the choice of reshoring by nineteen

American SMEs. The findings suggest that reshoring has been adopted so as to

correct for a mistake previously made as more intangible costs have been

considered. They apply a mixed method approach, where the first initial idea has

been confirmed/disconfirm by case studies. Unfortunately, as the sample is not

representative, the study cannot be generalised. However, results support the idea

that reshoring is a response to a previous mistake and not driven by the search for

location advantages. This result have been confirmed by an empirical study

developed by Fel and Griette (2017) and Kinkel and Maloca (2009).

A contrasting result has been presented by Fratocchi et al. (2016). They propose a

multidisciplinary framework for understanding whether the reshoring strategy of a

company is generated by a strategic decision or if it represents the reverse of

offshoring. By adopting the Transaction Cost Theory (TCT), the Resource Based


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View (RBW), internationalization theories perspective and Dunning’s paradigm (OLI),

the authors developed an interpretative framework with two dimensions:

Internal/External Environment and Customer Value/Cost Reduction. The conceptual

framework has been tested for classifying the motivations highlighted by a

systematic literature review of reshoring. This paper helps academics and managers

alike to understand what type of reshoring decision had taken place. It suggests that

reshoring has not been implemented so as to adjust to an error, but it has to be a

very thought-through strategy. The study suggests also that considering locational

weakness and strength is necessary for addressing a correct reshoring decision.

A further attempt to frame the reshoring decisions was developed by Arik (2013).

The conceptual framework proposed here also debates the origin of reshoring: a

strategic choice or an error adjustment? The author uses a desk research method for

identifying motives that lead a company to offshore or reshore a value added activity

and understand if environmental features influence these decisions. With a

multidisciplinary approach including Strategic Management and International

Business theories, the author suggests a framework which indicates when a

company has to take into account a reshoring strategy. This happens when

consumers’ behaviour change or the business environment in the host country

became volatile, fragile and unstable.


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3. Reshoring: Push and Pull factors

Exogenous factors such as globalization and policy instability and their implication in

location decisions have been studied by Tate et al. (2014). The authors based their

finding on a survey of 319 companies, a sample in which 40% already have applied

a reshoring strategy in the United States of America. The external motives for a

company relocation decisions are the following: a reduced labour cost gap between

the home and host country; a lack of skilled labour for advanced manufacturing;

rising energy costs; the volatility of the exchange rate and taxation system; shipping

time and consumer proximity. These exogenous factors highly influence the location

decision and the management choice to adopt a reshoring strategy. By implication,

managers should do a cost-risk based scenario for the designed location.

The lack of attention to reshoring in academic research was highlighted by Arlbjørn

and Mikkelsen (2014). In a research note the authors stressed the understudied

theme of reshoring by providing conceptual questions in relation to practical issues.

They pointed out antecedents, motivators and barriers under the lens of

internationalization strategy. They also suggested that further research should be

carried to discovering whether: ambidexterity is a dynamic capability to use in facing

international business strategy; the role of automation; and if strategies are

differentiated by company sized and sectors.

In the US context, Abbasi et al. (2014) focus on motives for bringing back the

manufacturing in the US. The authors develop a literature review on reshoring within

the US and list a series of motives such as: fuel and production costs; innovation as

a core competency; wage rates; operational issues in developing countries; public

policy for promoting jobs; and currency fluctuations. They also focus on public policy

efforts to foster reshoring strategies.

Picking up on the latter, Ellram et al. (2013) stressed the need for a more strategic

lens when location features are taken into account. According to the authors,

offshoring and reshoring are location decisions, and as such, a strategic view is

necessary. The research method deploys an exploratory factor analysis for the

reshoring motives and a multiple regression analysis for mapping the shift of

production location. Outcomes suggest that different drivers influence different

locations (see Figure 4); therefore, a clear and grounded strategy is requested. In


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this paper, there is room for concepts form economy geography and international

business such as those from Buckley and Casson.

Figure 4 - Drivers of Manufacturing Location Choice: Exploratory Factor

Analysis

Source Ellram et al. (2013)

Meanwhile, Stentoft et al. (2016b) treat backshoring as an opposite strategy of

offshoring. In their study, a comparison between offshoring and backshoring practice

is presented. Their focus is on innovation and they take a globalization perspective.

The authors seek to understand to what extend an international strategy influences

supply chain innovation, the business process and technology involvement. The

research method deploys survey research and the main finding is that a company

which applies a reshoring strategy invests more in automation and technological

manufacturing process when they reorganised their production at home. This paper

supports the idea that automation and innovation are keys for reshoring in practice.


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With a focus on local production systems, Forte and Miotti (2015) develop their

conceptual study around the revival of manufacturing district in Italy. According to the

authors, a reshoring strategy can be pursued by those companies which operate

inside and within a district, and only by cooperating together would they be able to

support and properly embrace a returning of manufacturing. A downside for Italy,

according to the authors, is the country’s weaknesses in logistics and its

bureaucracy, both of which constrain reshoring.

More in line with the GVC literature, Moradlou et al. (2017) support the idea of a

more careful strategic management of the supply chain, with a long-view based on

both tangible and intangible factors. The dichotomy price/cost is not sufficient

anymore and the hidden costs of offshoring are eroding cost margins generated by

delocalizing in low-cost job countries. In their study, the main feature is

‘responsiveness’ as a driver for reshoring. The outcome derives from a mixed

methods strategy, in which a literature review is followed by an in-depth case study.

The host country analysed was India, while the home country the UK. Sectors are

various: automotive, industrial goods, textile and marine. According to the study,

responsiveness is linked to long production lead times and logistics and

transportation features such as electricity storage, excessive paperwork and cultural

differences in working attitudes. This paper emphases supply chain constrains rather

than a location’s limit. It also highlights the importance of a cultural distance as a

driver for pushing manufacturing production from India back to the UK.

Another study developed by Stentoft et al. (2016a) place a lens on the location’s

labour market. Calling for more flexicurity, the authors suggest that this could be a

positive pull factor for high-labour cost country. Indeed, by providing more reliable

welfare for workers, the government can improve backshoring activities by forming a

working class with the necessary skills to face backshoring. As reshoring involves

the enrolment of a new labour force, there must be a deep pool of candidates for

some new roles, and therefore the government has to provide the proper education

and training tools and welfare for supporting migration between old and new types of

jobs. The study was made in Denmark, where the prime minister proposed for the

first time the term flexicurity. It is interesting that in this article a real policy action is

suggested to support reshoring.


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Supporting a longer time horizon perspective, Młody (2016a) undertook desk

research on backshoring under the lens of de-internalization and disinvestment. The

author proposed a categorisation listing motives for backshoring and de-

internalization. Results suggest that backshoring is not part of a de-

internationalization strategy but is an independent strategy, although both could

optimize the firm’s performance. Therefore reshoring has to be seen as a long term

strategy and not a rushed decision. This paper supports the idea of reshoring as an

international business practice, and also that reshoring is a strategic decision and

not a mistake correction exercise.

Similarly, Carbone and Moatti's (2016) editorial paper reviewed existing

offshoring/backshoring research and links with the Supply Chain discipline. Results

support the idea that Offshoring/Backshoring involves changes in production

processes and as consequence, concerns supply chain management. These

strategies also influence Supply Chain networks, and the movements of power within

the network should be studied further. These decisions are also relevant to specific

products, context or actors. The research also presented the need for a horizontal

dimension, in which environment and society enter the game as drivers to adjust

offshoring/backshoring practices. This allows the study offshoring/backshoring

decisions with a GPN/GVC approach.

More broadly, Kinkel (2014) suggests that a changing model of manufacturing

system is in the air and that a new business model should be developed. In this

paper, the author highlights the need for manufacturing relocation inside the borders

of a specific territory, where the necessary engineering and manufacturing

capabilities are located. With reference to the German automotive system, he points

out that only first-tier suppliers have been analysed and when the analysis opens up

to the second/third-tier, the numbers are so high and the layers so thick that a single

study is not enough. This paper stresses the constraints of supply chain analysis,

and in so doing opens the door to a GVC analysis. Further research agendas involve

the path of manufacturing trends since the financial crisis, whether there are lessons

from previous offshoring strategies, and if the complexity of value chain influences

the decision on backshoring.

CUSTOMERS’ REACTIONS TO RESHORING DECISIONS


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In work by Maronde et al. (2015), the focus in on consumer behaviour. The authors

develop a statistical model, where the hypothesis is an enhancement of product

quality and environmental practice guided by reshoring strategy do affect consumer

behaviour. The study uses a moderating variable which is consumer nationality,

German or American. The dependent variables are purchase intent and willingness

to pay a premium price. The tests used are ANOVA and MANOVA. Results shows

that pushing the environment issue is positive for the US market and therefore,

American consumers are willing to pay a premium price, while it is not true for

German customer, where quality is preferred over environment. This study is useful

for comprehending that different markets seek different product features, and that

the motives for reshoring in a country may be different as compared with another

country. This is in line with the result of Ellram et al. (2013).

Grappi et al. (2015) carry out a study of three scenarios with the aim of

understanding consumer reactions to a reshoring practice. Prior to analysis, the

reshoring literature was reviewed with a moral perspective. This means that feelings

such as gratitude, ethics and the ‘sustainability’ of a purchase are positively related

to a reshoring strategy. Results show that a product previously reshored has a

positive feeling in consumer reactions. However, the strategy of reshoring has to be

explained to the consumer, otherwise the willingness to pay a premium price is not

supported. This paper is one of the first to analyse the reshoring practice under the

lens of marketing strategy and it suggests that a story explaining the strategy of

reshoring could be a useful marketing tool.


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4. INSTITUTIONS AND RESHORING

With a multiple case study research method, Ketokivi et al. (2017) investigate the

interdependency between value chains and institutional relations in high-cost

countries. They argue that to have a grounded understanding of relocation decisions

in advanced countries, managers should take into account the interdependency of

their value chains. As each value chain is global, more stakeholders should be

considered and more dimensions analysed. This paper supports the idea of applying

a GPN methodology to understanding the reshoring phenomenon.

The policy agenda on reshoring has been critically evaluated by Młody (2016b). In

this study, the author reviews the main European policy agenda for reshoring and

also the academic papers which takes into account implications for governments.

The results are threefold: Fratocchi et al. (2015) argue that developed economies

are becoming more appealing for some sectors regarding the return of production;

Grappi et al. (2015) proposed that consumer ethnocentrism highly influence the

reshoring decision of a company; and Bailey and De Propris (2014) suggest the

need for a government policy to support reshoring practice. Again, a list of push/pull

factors were presented, along a call to study reshoring under different points of

analysis; not only with a firm-centric orientation, but with more stakeholders involved.

Tate (2014) stresses that reshoring strategy could be a policy leverage for the US

government. In addition, the author identifies the 2008-9 Global Financial Crisis as a

starting point for developing manufacturing repatriation strategies. Improved flexibility

of the manufacturing system is suggested for enhancing proximity in the final market.

This is possible only if there is a reliable connection system, from warehouses to

manufacturing sites. Further research agendas are suggested, oriented towards a

better understating of US policy, the advantages of first movers and consequences

for laggards, and which disciplines could be lined up for analysing the location

decisions of global supply chains. This paper offers room for developing a theoretical

framework in which regional economic, international business and supply chain

strategies are linked.

In contrast with the afore mentioned authors, Zhai (2014) proposed a mathematical

model to analyse if policy incentives can support the reshoring movement. By doing

a competitive analysis on a market operating under conditions of perfect competition,


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the study demonstrates that policy incentives do not support a reshoring initiative.

Findings suggest that if the firm’s final market target is the low-labour cost country

and this is big enough, the company should not bring back its production.


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5. RESHORING AND FINANCIALIZATION

A mathematical model is presented by Zhao and Huchzermeier (2017) in which they

take into account capacity reshoring, production switching and financial edging. By

adopting a mean-CVaR (Condition Value at Risk) approach, results drive towards a

perspective in which operation flexibility reduced the risk of financial edging, which is

a competitive advantageous in today’s economic scenario. Therefore, according to

this model, a major flexibility in operations allows firms to be more appealing in the

investment market. However, the company has to be flexible also in varying

production. As it is a model, empirical research is not presented and this limits the

usefulness of the model. Nevertheless, the study is significant in indicating research

attention to the financial dimension of reshoring activity.

Linked to this, Brandon-Jones et al. (2017) study the variation share values for

those companies that announced a reshoring strategy. Base on the US market, the

study uses a FACTIVA analysis on 37 announcements of reshoring. Results are

twofold: (i) the reshoring announcement increases the share value on the stock

market; and (ii) there are more benefits than costs associated with reshoring.

Furthermore, Perova (2014) tries to give a financial perspective on reshoring in the

US by analysing if the investment of moving back the production was worth the

effort. The author takes into account several drivers such as the lowest cost in US

manufacturing, technological innovation, the rising cost of international transportation

and the proximity to R&D and university research centres for developing the financial

model.


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6. RESHORING AND THE HIDDEN COST OF OFFSHORING

A Spanish study developed by España (2015) confirms the hidden costs of

offshoring, and proposes a new cost model for addressing better the location

decision, where reshoring is part of it. In this new cost model, four cost categories

are considered: monetary, time-related, strategic and country-risk. From this

perspective, there is seen to be a need for developing a new model in which

intangible assets should be taken into account. The paper suggests a

multidisciplinary study on global supply chains and the way in which locations are

affected.

Navarro (2013) supports the pricing concept of hidden cost in offshoring decisions.

As the paper demonstrates, many US companies offshored their production in China

to obtain some cost advantages. However, over a prolonged period, the rise of other

intangible costs and some complexity in managing the supply chain led the firm’s

management to review their strategic choice of location decision. This paper

buttresses the idea that hidden costs influence the reshoring decision and more

attention should be paid to the choice of the next location decision, and that

reshoring is the correction of a previous strategic error.

7.1 Reshoring and Transportation & Logistics

Lieb and Lieb (2016) analyse the ‘Amazon Effect’ in the transportation industry and

its implication in restructuring regional industry. The Amazon Effect concerns

consumers’ behaviour in ordering online rather than buying in store. By ordering

online, the regional infrastructure has to be up-to-date for offering a competitive and

agile transportation system which can be safely used by large internet companies

such as Amazon. Going into more detail, the opportunity to purchase via Amazon

Prime is also a challenge for the local industrial system, because the product has to

arrive in next 24 hours from the order confirmation. This is a pull factor for the

industrial location, because its closeness to consumer allows timely delivery of what

has been ordered. The study has been developed by interviewing 14 American

CEOs and the result suggests that an ‘Amazon Effect’ is driving the nearshoring of

some manufacturing and service companies.


- 25 -

Lavissière et al. (2016) studies a practical example of how an exogenous factor,

such as infrastructure, could influence the reshoring decisions made by a company.

Through an interactive network analysis and in-depth case study, the authors

suggest that the management of resource available in a territory is extremely

relevant for increasing the value of the territory itself, and therefore being more

appealing for company’s manufacturing. The article leaves room for a GPN/GVC

analysis for mapping the strategic use of the resources availability.

An empirical study on quality management system as driver for reshoring is provided

by Uluskan et al. (2016). The authors suggest that in the fashion industry, Quality

Management (QM) system coordination with suppliers is a relevant driver for

pursuing a reshoring strategy.

Martínez-Mora and Merino's (2014) empirical study analyses reshoring in a footwear

district in Spain. Through a mixed method approach, first by in-depth interviews and

then by the collection of grey literature (magazine articles and press), they find that

changes in batch size demand and shorter delivery times have pulled manufacturing

back into the Alicante district. The theory applied for investigating the reshoring

phenomenon was Transaction Cost Economies and the OLI framework. Therefore,

this study supports the view that reshoring could be analysed within an International

Business prospective.


- 26 -

7. RESHORING AND SUSTAINABILITY

Ashby (2016) empirically studies a British fashion company through a longitudinal

case study. Findings suggest that sustainable practices add value to the firm’s

supply chain and they are pursued if there is enough collaboration through the

suppliers’ network and clear marketing promotion for the consumers. Sustainable

practices also nurture backshoring, as the latter itself contributes to developing

sustainable production. By promoting the use of locally sourced materials and a local

work force, customers are willing to pay a premium price. Because their study

applies a Social Network Theory, it could be replicated by adopting a GPN approach.

Moreover, the research supports the idea that offshoring practice is not suitable for

high-end fashion industry due to the complexity of its supply chain and the low

environmental regulations in low-cost countries. Robinson and Hsieh (2016) use a

case study research method for investigating the renewal of a fashion supply chain.

The sector is high-end fashion and the home country is the UK. The single case

study presented in this paper suggests that for manufacturing high-end quality

products, R&D cannot be separate from the manufacturing process, in lieu of Pisano

and Shih (2009). In this type of sector, product innovation comes both from

consumers and from the supply chain, where the combination of new materials with

new technologies can boost the final result. The shrinking of the list of suppliers into

a radius of a few miles around the company’s HQ is a strategy which supports

reshoring strategies but also enhances the location’s features due to the

embeddedness of heritage. The research suggests more studies on reshoring and

sustainability.


- 27 -

8. RESHORING AS LOCATION DECISIONS

Ancarani et al. (2015) investigate the duration of an offshored activity. This was

carried out through a survival analysis of 249 offshoring experiences. The sample

was informed by studying a grey literature. The main findings are that contextual

factors such as the type of industry, home and host country and the firm’s size

positively influence the shortness of offshoring activities. The results are more valid

for technology-firm based industry, where the velocity of market demands influence

manufacturing decisions. Moreover, a reduced gap between hourly labour rates paid

in the home and host countries, plus a cultural difference among them, positively

influence the returning home in short time. Other motives are quality related issues

and a ‘made-in’ effect. However, the study does not highlight pre and post offshoring

company performance which could highly influence the study’s outcomes, and the

framework has not been supported by any empirical case study. This framework is

based on Dunning’s theory, where contextual factors are strongly linked to a firm’s

performance.

An empirical study on a reshoring decision has been carried out by Gylling et al.

(2015). The authors develop a single case study of a cycle manufacturing company.

The results show that a company needs a well-developed network of suppliers in the

home country to undertake reshoring successfully. The network not only has to be

cooperative, but also competitive on an international level. The need to act as a

block against international competitors is an excellent strategy for gaining value and

obtaining sustainable competitive advantage. In this scenario, skills also have to be

upgraded, in order for the firm to be innovative also with the same workforce. The

home country was Denmark. Despite the list of pull factors and territorial constrains

highlighted in this work, the study should be replicated in order to develop its

generalizability.

Fel and Griette (2017) undertook an empirical study on near-reshoring. They

surveyed 215 firms so as to discovering determinants of reshoring. The study was

developed under an economic geography lens, by leveraging location strengthens

and weakness. They found that the lack of technical expertise, the changing of

financial terms with China, and corporate strategy are the main motives in applying a

near-reshoring strategy. Moreover, the firms surveyed confirmed that reshoring is to


- 28 -

repair a previous mistake and that improved quality and responsiveness of supply

chain is a plus for bringing back the manufacturing. Overall, the study demonstrates

that macroeconomics factors affect the location decision.

Canham and Hamilton (2013) investigate the shoring decisions on SMEs in New

Zealand. Through survey research, the authors find that backshoring is convenient

when flexibility is preferred to low-cost production. On average, a company is more

willing to bring production back to New Zealand if the final market demands more

quality and this could be leveraged by pushing the heritage factor of “Made in New

Zealand.”

Ocicka (2016) develops a study on reshoring in Poland. The author carried out

survey research and used Transaction Cost Analysis (TCA) for identifying the best

location where conceptually to move manufacturing. In this study, a list of drivers and

benefits of reshoring based on the previous literature review is presented, but a good

point to highlight is the emphasis on value creation, not only on the economic side,

but also on a social and environment perspective. These three value dimensions

influence the decision of the company, therefore they should be included in the TCA

analysis. This paper supports the idea of analysing reshoring with a GPN/GVC

model.

MŁOdy (2016c) develops a study on the potential of Central and East European

(CEE) countries in relation to the reshoring trend. More than reshoring, nearshoring

is seen as more appropriate, due to those countries being well known as centre for

the ‘manufacturing of Europe’. The author proposed a list of motives made by a

literature review analysis. Then, by using the Word Data Bank data, an Input-Output

analysis was carried out for understanding the movement of goods in Poland. The

outcome is that a Western company may be more willing to produce their product in

China, as Poland is too expensive and quality is at the same level. Moreover, Poland

does not have an infrastructure system that allows smooth logistics and

transportation operations. Therefore, reshoring strategies in Poland are not suitable,

but it may be considered as a nearshored location. The main four motives for moving

back production are: reduced labour gap cost, labour skills and quality, logistics and

the general investment environment.


- 29 -

Brown (2012) takes advantage of the reshoring trend for developing a study on the

robot market. According to the study, the demand for automation should increase if

reshoring takes hold in advanced countries. This paper argues that reshoring is a

driver for the robot market, not that automation is a driver for reshoring.

Finally, Bailey and De Propris (2014) make an empirical study on the UK automotive

industry through a mixed methods approach. First they deploy a survey and then,

through an inductive research approach, the authors develop an in-depth case study.

Reshoring limits and drivers were highlighted, but a key contribution is a call for a

policy agenda, which should associate the companies who are applying a reshoring

strategy. Heavily connected with the automotive case, the authors give an economic

geographical slant to the paper, the first of its kind. Indeed, several conceptual

papers indirectly suggested that economic geography could be a useful discipline to

apply for a reshoring analysis, but no empirical research has been done, apart from

this paper. This paper makes the case for a geographic economic orientation to

research on the reshoring phenomenon and it contributes to filling the gap in theory

by concluding that is the market that shapes the strategic location decision, not the

sourcing costs. There is also room for a GVC approach in the authors’ approach.


- 30 -

9. A MAKERS RESEARCH AGENDA

Our detailed and critical literature review suggests that there are ten major

challenges for research on reshoring. These can be classified as:

Methodological challenges

1. A Lack of data for empirical research;

2. The need for cooperation between academics and data sources to share data

on reshoring;

3. Difficulties in finding transparent case studies;

4. Disciplinary boundaries prevent cross-fertilisation and instil mistrust in mix

methods

Scientific challenges

5. A lack of communication on the process of reshoring;

6. National agendas on industrial policies impacting on education, training and

innovation, new firm formation and bias by political announcement;

7. Time lag between decision and implementation of reshoring both in

establishing new supplier relations and in change the destination of

investment;

8. The lack of relevant skills and of a manufacturing ecosystem in home

economies which were eroded due to manufacturing offshoring;

9. Changes strategies between cost and price depending on new competitive

environment;

10. The re-location of production near final customer markets and new global

value chains’ dynamics.


- 31 -

Furthermore, the debate on reshoring has been eager to strengthen the evidence

base to build a credible new stream of research. However, as new case studies have

emerged and multiplied, a number of more fundamental issues have emerged that

we want in project address:

a) what reshoring is and what different forms it might take;

b) what the drivers, processes, barriers and consequences of reshoring might be

and they differ comparatively in different countries;

c) what methodology we need to utilise to study reshoring.

What is reshoring?

Without embarking on a futile quest of ‘the definition’, our literature review has

revealed that the phenomenon of reshoring needs to be conceptually dissected if it

can both address a novel trend in firms’ strategies towards production organisation

and supply chains, and provide arguments that are robust and evidence-based.

There are already in the literature a number of terminologies used but often

enveloped in the term ‘reshoring’.

We suggest that to clarify the phenomenon we need to consider the following

categories:

Geography

The geography of firms’ production organisation matters. There is a vast debate on

firms’ location decision choices in the International Business literature (foreign direct

investment (FDI) theories and multi-national enterprises (MNEs) theories). Most of it

has however utilised the cognitive categories to explain the internationalisation

strategies of firms (See D5.1 for more on globalisation and MNEs).

In the context of reshoring, the where to and where from of movements in firms’

production locations are important to the extent that they might be linked to the

motives and drivers of such changes. Consider a home economy A and changes in

the location choices of firms from and to A as captured by figure 5 below. Starting

from a similar point where a function has been previously offshored by a multi-


- 32 -

national firm, we suggest distinguishing four forms of re-shoring. Although some

terms have been so far used interchangeably, we suggest they could be

meaningfully differentiated. These are: Back-shoring, Near-shoring, Home-shoring

and Hop-shoring.

Figure 5 - Modelling re-shoring


Back-shoring

location choice that assumes a relocation from the home economy to a foreign

economy and consequently back to the home economy

Near-shoring


economy and consequently back to an economy near home

Home-shoring

location choice that assumes a relocation from a foreign economy back to the home

economy

Hop-shoring


economy, then to another foreign economy in an itinerant way

Re-shoring

A B A

A B C

A B Z n

? B A

Back-shoring

Hop-shoring

Near-shoring

Home-shoring


- 33 -

Functions

A second important aspect to consider is what functions are relocated. Offshoring

strategies were explained by the well known ‘smile curve’; current firms’ location

strategies are driven by more complex decisions, not least because value chains

have become less linear and multi-value can be associated to similar functions in

different competitive environments.

Production functions differ by

labour over capital ratio

customisation

flexibility

value creation

quality reliability

technology intensive

Mode

internalisation investment decision

externalisation outsourcing decision

This means that within the broader umbrella term of re-shoring, we are interested in

studying back-shoring and home-shoring as firms’ decision to move some functions

of the production process from overseas to the home country. This can occur via

either internalisation or externalisation modes.


- 34 -

APPENDIX

Table 1 - Classification of which academic field should be involve for further researchers

on Reshoring. Feasibility of adopt a GPN/GVC framework analysis.

EG IB SCM Others GPN/GVC

Ancarani et al. (2015) x x

Arik (2013) x x

Arlbjørn and Mikkelsen (2014) x

Ashby (2016) x X

Bailey and De Propris (2014) X X X

Bas et al (2016) X

Brandon-Jones et al. (2017) X FINANCE

Brown (2012) X MKTG

Canham and Hamilton (2013) x

Carbone and Moatti (2016) X X X

Ellram et al. (2013) x x

Espana (2015) x

Fel and Griette (2017) x X

Forte and Miotti (2015) x

Fratocchi et al (2016) x x

Fratocchi et al. (2015) x x X

Grappi et al. (2015) x x MKTG

Gray et al (2013) x x x

Gray et al (2017) x x

Gylling et al. (2015) x x X

Ketokivi et al (2017) x x

Kinkel (2014) x X


- 35 -

Lavissiere et al. (2016) x X

Lieb and Lieb (2016) x x

Maronde et al. (2015) X MKTG

Martinez-Mora and Merino (2014) x x

Młody (2016a) x

Mlody (2016b) x x

Mlody (2016c) x

Moradlou et al. (2017 x x

Navarro (2013) X

Ocicka (2016) x X

Presley et al. (2016) x

Robinson and Hsieh (2016) x x

Stentoft et al. (2016b) x x

Stentoft et al. (2016c) x

Tate (2014) x x x

Tate and Bals (2017) x X

Tate et al. (2014) x x

Uluskan et al. (2016) x

Wiesmann et al. (2017) x x x X

Xiaole and Fuqiang (2014 x

Zhai (2014) x

Author Elaboration, 2017


- 36 -

Table 2 – Firm’s endogenous and exogenous reshoring factors divided by EG, IB and SCM

Pull Push Exogenous EG: IB SCM

Made in effect High Employment rate Subsided for relocation Union’s pressure Proximity to customers Policy’s agenda Responsiveness Technology clusters and Spill overs benefit Political Stability Sustainable natural resource Infrastructure availability New Customer Rising in Developing Countries Privilage relationships New ecosystem thinking regional concentration and specialization Local movement for reducing ENVM Positive stock price reaction

SC Resilience Transportation and Logistic cost increased Security of Supply Chain Regulatory Environment Global Crisis Trade and Tariff scheme Lack of flexibility Cultural and psychic distances Exchange rate shift Regional financial instability Declining Wage Gaps Repeated environmental and/or human rights violations Security breeches and piracy problems

Endogenous

Configuration and restructured cost Quality and Brand Image Customer Satisfaction Product process automation Manufacturing productivity Innovation Enhanced Quicker product development Shorter Supply Chain Reduction of Carbon foot print Strategic Coupling Sunk Cost Innovativeness Standardization of regulations Proximity to R&D and product development Time-to-market Flexicurity QMS Suppliers SC Network more visible and controllable with few suppliers Joint R&D and supplier collaboration Company’s values Uniqueness Changes in corporate strategy Changes in firms’ market-product combinations Production rationalization

Need Rapid Turnover Lead Time More Qualify Workforce Cost of managing operations overseas Container Size and Order Loss of Know How IP protection Governance relationship (Subsidiaries larger amount of autonomy and focusing on short term financial performance) Extra supplier training and assistance organizational cultures, Difficulties of monitoring quality levels De-motivation of the internal staff Weakening of the market motivated by the international economic and financial crisis


- 37 -

Improved cost analysis for individual products Decrease in the cost of implementation of new manufacturing Technologies close-to-market supply chains Impact

Sources: Authors’ Elaboration, 2017 – Source (Kinkel, 2012; Abbasi et al., 2014; Arlbjørn and Mikkelsen,

2014; Bailey and De Propris, 2014; Kinkel, 2014; Margulescu and Margulescu, 2014; Martínez-Mora and

Merino, 2014; Ancarani et al., 2015; Fratocchi et al., 2015; Gylling et al., 2015; Ashby, 2016; Fratocchi et

al., 2016; Młody, 2016b; Ocicka, 2016; Robinson and Hsieh, 2016; Srai and Ané, 2016; Stentoft et al.,

2016a; Uluskan et al., 2016; Brandon-Jones et al., 2017; Hartman et al., 2017; Ketokivi et al., 2017;

Moradlou et al., 2017; Tate and Bals, 2017; Wiesmann et al., 2017)


- 38 -

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Ends


- 44 -

MAKERS - Smart Manufacturing for EU growth and prosperity is a project funded by the Horizon

2020 Research and Innovation Staff Exchange Programme under the Marie Sklodowska-Curie

Actions - Grant agreement number 691192.

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Documents

MAKERS · that the next industrial revolution – a focal point for the MAKERS project - has the potential “to restore the competitiveness” of developed economies (OECD 2017a,