Comparing offshoring and backshoring: The role of manufacturing site location factors and their impact on post-relocation performance

Abstract

The global nature of businesses has increased the geographical dispersion of operations and has made the location decision an important strategic perspective for manufacturing firms. The consensus view is that three major plant location factors must be kept in mind: (1) access to low-cost manufacturing, (2) proximity to market, and (3) access to development competences. Two options for changing the global manufacturing footprint are offshoring and backshoring. This research has analysed the role and relevance of these manufacturing site location factors as drivers for offshoring and backshoring decisions and has investigated these factors' relationship with operational performance. The study used survey data drawn from Swedish manufacturing plants, including 133 offshoring projects and 99 backshoring projects. The survey instrument used the same set of questions for both relocation directions (for drivers as well as performance benefits), which allowed us to analyse each direction separately as well as to make comparisons between offshoring and backshoring. We applied a theory-testing approach in the study, in that we tested how the three major location factors related to offshoring and backshoring based on confirmatory factor analysis and regression analyses. The results have verified that these three major location factors are relevant for both manufacturing offshoring and backshoring; the results also indicated significant differences in how these factors influence relocation decisions for offshoring and backshoring as well as how they affect performance.