OM Forum -- Benchmarking Global Production Sourcing Decisions: Where and Why Firms Offshore and Reshore
Georgetown McDonough School of Business Research Paper No. 2791373
Stanford University Graduate School of Business Research Paper No. 16-28
23 Pages Posted: 10 Jun 2016 Last revised: 19 Jul 2017
Date Written: July 7, 2017
Problem Definition: Manufacturing firms are undergoing re-structuring defined by a collection of adjustments and decisions, which affect the source and destination of manufactured products throughout the firm’s global supply chain network. We report on a comprehensive picture of manufacturing sourcing on a global basis.
Academic/Practical Relevance: With dynamic changes in global economic, political and technological conditions, the design of global supply chain strategies has become critically important for executives, and has great potential for Operations Management (OM) research.
Methodology: Our work is based on a global field study conducted in 2014 and 2015 among leading manufacturers from a wide range of industries. The data set has the distinguishing feature of reflecting actual decisions that the firms made recently (during the last 3 years).
Results: Companies are currently restructuring their global production footprints. The majority of firms engage in offshoring. Reshoring does occur but seldom for corrective reasons. China remains the most attractive site for production sourcing, followed by Eastern Europe and Southern Asia. Manufacturing continues to decline in the developed economies of Japan and Western Europe. We observe that while North America may be at the cusp of a manufacturing renaissance, such a change is not just because of reshoring by domestic firms. Labor cost no longer dominates manufacturing location decisions, rather, firms decide based on complex trade-offs among a variety of factors. Finally, firms localize production in developed economies and use developing economies as production hubs.
Managerial Implications: Our goal in this paper is to inform both managerial policy decisions and the academic research agenda by developing insights on managerial practices that concern production sourcing and on the factors that drive such decisions. We develop hypotheses concerning how firms make these strategy decisions and we discuss implications for analytical and empirical research.
Keywords: manufacturing location decisions, offshoring, reshoring
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