Offshoring, Reshoring and the Manufacturing Location Decision

Abstract

Global supply chains literally make the world go around. There is constant attention given to global supply chain issues in the popular press, whether the topic is supply disruption, transparency, or social responsibility. There is growing recognition that the relatively young area of supply chain management research still has much to gain from incorporating the perspectives of other disciplines into our research. Embracing the opportunities to incorporate the viewpoints and theories of other disciplines into supply chain research is one of the objectives of the Journal of Supply Chain Management. This was demonstrated in Maltz's (2012) editorial and hosted discussion forum on global supply chains. It incorporated the perspectives of economics, from a trade facilitation policy standpoint (Mann, 2012), geography and regional structures (Rodrigue, 2012), and global value chain analysis, which is grounded in the economics and governance literature (Gereffi & Lee, 2012). The current hot topic in global supply chains is whether and where manufacturing is moving, expanding, or contracting across the globe. One cannot browse through a business periodical in the past year or so without seeing an article that talks about “the movement of manufacturing back to the U.S.” Frequently termed reshoring, it is generally defined as moving manufacturing back to the country of its parent company.11 Gray, Skowronski, Esenduran and Rungtusanatham (2013) provide four variants on the definition of reshoring. For example, Walmart (2013) is encouraging this by announcing that by 2023, it plans to increase its sourcing within the U.S. by $50 billion. Regardless of why companies may be choosing to expand or locate manufacturing in the U.S., the decision is essentially a manufacturing location decision. Despite the tremendous impact that manufacturing location has on organizations' supply chains, the research on manufacturing location as a primary decision has been rather limited in the supply chain literature. Much of the supply chain focus on the manufacturing location decision has been subsumed to the outsourcing decision. Most of the direction of the movement of manufacturing locations in the past several decades has been to low-cost countries. With all of the attention that is being given to reconsidering whether low-cost manufacturing locations support optimal supply chain configurations, it is time to reconsider the manufacturing location decision from some different perspectives. The series of essays included in this issue's discussion forum does just that. It also paves the way for future research and theory building regarding how, why, and where companies decide to locate their manufacturing operations. Just as Maltz's (2012) forum on global supply chains incorporated the perspectives of different disciplines, the forum includes a mix of disciplines and lenses to gain perspective on the manufacturing location decision. The perspectives taken here are ethical, economic, combined economic and strategic, and an eclectic theory-building approach. Fine (2013) takes a holistic, ethical perspective in his comment, “Intelli-sourcing to replace off-shoring as supply chain transparency increases.” He concludes that “intelli-sourcing” will be the future trend in manufacturing location decisions. He asserts that companies will no longer place so much emphasis on chasing the lowest price location. Rather, as companies are increasingly concerned about their reputations and the exposure that they may face in increasingly transparent global supply chains, they will take a more balanced, long-term, and ethical perspective on the manufacturing location decision, as well as the sourcing decision. Manufacturing location has long been a topic in the economics literature, building on theories that have been little used in the field of supply chain management. One primary theory is internalization theory (Buckley & Casson, 1976; Casson, 2013; Casson & Wadeson, 2012; Dunning, 1988; Ellram, Tate & Petersen, 2013). Two essays in this issue examine the internalization perspective: Casson's (2013) “Economic analysis of international supply chains: An internalization perspective” and Ellram et al. (2013) “Offshoring and reshoring: An update on the manufacturing location decision.” Casson provides some background on the relevance of economics and internalization theory in particular to better understanding the supply chain. Internalization theory takes a macro perspective, considering industry-level issues and examining the strategic questions of where the facility is located, who owns the product, and who employs the productive labor (Casson, 2013). These also interplay with the issue of foreign direct investment. Casson (2013) suggests that internalization theory can be used to explain both the rise of offshoring and its reversal, reshoring. Ellram et al.'s (2013) essay takes a narrower view of applying internalization theory to the location decision. Using empirical survey data, this paper applies the location aspect of internalization theory to provide an understanding of what factors affect organizations' perceptions of the attractiveness of various regions as locations for owned manufacturing facilities. They conclude that organizations are beginning to look at their manufacturing location decisions from a broader lens than simply cost, giving more weight to supply chain issues as well as strategic factors. Combining economics and strategy, McIvor's (2013) essay, “Understanding the manufacturing location decision: The case for the transaction cost and capability perspectives,” examines the similarities and differences between two theories that have been popular in SCM research: resource-based view and transaction cost economics. These theories have been applied to the outsourcing decision in the supply chain literature and elsewhere, but not as much to the manufacturing location decision. McIvor suggests that these theories can also be applied to the outsourced manufacturing location decision to help organizations reduce the risk of opportunism, when an organization decides that it should outsource. Issues such as cultural variables, property rights and protection, and supplier relationships can be viewed through these lenses when comparing among various offshore locations. This conclusion was reinforced by Ellram et al. (2013), in their findings that supply chain characteristics take on different levels of importance in different regions. Finally, Gray et al. (2013) provide a framework for pushing the research on manufacturing location decisions forward, from a supply chain perspective. First, they provide clear definitions of various terms such as reshoring, from which constructs can be built and clear future research streams developed. They also provide a review of the literature in a number of different areas that have framed the manufacturing location decision. Finally, they lay the ground for theory development and future research through the development of five assertions. These assertions consider the relationship between reshoring and the location decision, between offshoring and reshoring, problems with the way that the location decision is made, environmental implications of the manufacturing location decision, and the temporal nature of the location decision, including the purported trend toward reshoring. The editors hope that you find the essays and comment related to this timely topic useful. It is often noted that academic research tends to lag practice and report on past events, rather than push the boundaries of knowledge forward. This set of essays is an effort to help push the boundaries of SCM research and encourage researchers to embrace current, real-world issues as well as the perspectives of other disciplines.