The missing links in offshoring and backshoring research: learning through the 6 foundational premises of the theory of the supply chain

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Erratum

Since the start of the 2010s, manufacturing location issues have become a key focus of political campaigns and debates. Backshoring – defined as bringing manufacturing or other activities back to the country of the parent company, whether it is insourced or outsourced (Gray et al. 2013) – has been declared a specific priority of elected governments in several countries such as France and the United States. However, businesses do not seem to be following a clear and definite backshoring trend, as they continue to pursue alternating offshoring, nearshoring and backshoring strategies, to cope with their network design challenges and operationalise their key make or buy decisions in a global context (Berger 2013; Brennan et al. 2015; Jin 2004; Verdu, Gomez-Gras, and Martinez-Mateo 2012). In any industry, the dominant strategy may vary between companies: in the apparel industry for example, while most western companies have been sourcing from Asia on a massive scale since China joined the WTO in 2001, others, such as Zara or Ermenegildo Zegna, have deliberately kept a significant part of their manufacturing in Europe.

While offshoring, defined as transferring manufacturing or other value chain activities to distant locations, whether insourced or outsourced (Gray et al. 2013), and backshoring are key issues for managers, politicians and regulators, existing research into these topics is surprisingly rare generally, and in supply chain management (SCM) specifically. Research on backshoring lacks reliable empirical data, while research into offshoring has focused mainly on specific topics such as outsourcing and offshoring of information technology (IT) services, neglecting the manufacturing and supply chain (SC) dimensions. Overall, although existing works offer new insights and analysis, they mainly highlight research gaps (Ellram 2013) and draw directions for future research on this topic. The papers that have been published are often stimulating essays providing challenging discussions and food for thought, but only a few of them include empirical analyses (Kinkel 2014). Theory building on these topics is also rare. Through this special issue (comprising two special sections spread across volume 17 issue 3 and issue 4), we aim to contribute to filling this gap in both its theoretical and empirical dimensions.

The purpose of our Editorial is to contribute to framing offshoring and backshoring decisions theoretically in a SC perspective. Accordingly, we build our analysis on the recent theory of the SC (Carter, Rogers, and Choi 2015) which rests on six foundational premises. On the one hand, our aim is to find support for the foundational premises of the theory of the SC in contemporary offshoring and backshoring literature. On the other hand, it is also to identify research gaps that could feed future works related to offshoring and backshoring in SCM.

After summarising the theory of the SC, we will highlight and discuss how existing research on offshoring and backshoring fits into this theoretical model, and also point to potential knowledge gaps to be filled in the light of the theory.

We will then briefly summarise the articles selected for this special issue and highlight the ways in which they contribute to making sense of the theory of the SC in the area of offshoring and backshoring decisions.

The theory of the SC

While SCM has been theorised for years, the SC itself, defined as ‘the phenomenon that we purport to manage’ (Carter, Rogers, and Choi 2015), was theorised only recently (Carter, Rogers, and Choi 2015), following a conceptual theory-building approach, with the objective of reconciling an excessively simplistic and restricted view based on the traditional supplier–manufacturer–distributor triad, with an overly complex view where the SC is seen as a broad network of companies. To sketch a theory of the SC itself, the authors (Carter, Rogers, and Choi 2015) suggest six foundational premises:

• FP 1) the SC is a network that consists of nodes (agents who can be manufacturers, warehouses, financial institutions) and links (connections between two nodes);

• FP 2) the SC is a complex adaptive system as it is a dynamic network and each agent seeks to control what he can;

• FP 3) the SC is relative as each agent has different views and priorities depending on its position and industry;

• FP 4) there is a physical and a support SC where the former defines the traditional SC including physical, information and financial flows between nodes and the latter consists of nodes through which a product does not flow such as the financial services;

• FP 5) the SC is bounded by a fuzzy horizon that is limited by the visible horizon of the focal agent and

• FP 6) the SC fuzzy horizon is subject to attenuation as distance seen as a multisided concept (physical cultural distance and closeness centrality) increases.

We will discuss these principles in turn in the context of offshoring and backshoring decisions, and analyse how future research on offshoring and backshoring can inform and expand the young theory of the SC.

Research into offshoring and backshoring is still scarce and mainly addresses the reasons for selecting one mode versus another, rather than seeking a deeper understanding of the processes underlying such moves and analysing their implications for the SC. Recent research on manufacturing location choices (Bals, Daum, and Tate 2015; Brennan et al. 2015) highlights the need for a holistic, integrated approach (Melo, Nickel, and Saldanha-Da-Gama 2009) considering a broad spectrum of dimensions leading to a high level of complexity, including the number of actors involved, the inter-connected impacts and the ongoing dynamic adjustments. These elements clearly resonate with the inspiring principles of the theory of the SC (Carter, Rogers, and Choi 2015), that is, the network and complex adaptive system perspectives, and call forth efforts to connect offshoring and backshoring moves to the proposed foundational premises.

FP1) Offshoring and backshoring decisions affect the SC network, its extent, density as well as the nature and positioning of its nodes and links

According to the first premise of the theory (Carter, Rogers, and Choi 2015), the SC is a vast network and consists of nodes which are related one to the other through links. Outsourcing, meaning the relocation of jobs and processes to external providers regardless of the provider’s location (Olsen 2006), has been developing consistently as a business practice over the last three decades, and has sharply increased the number of nodes in the SC. More recently, offshoring and backshoring moves, both those managed internally or those involving an external provider (offshore and backshore outsourcing), have reinforced this network view of the SC within a global context, as such moves tend to affect the number of actors involved (industrial subcontractors, warehousing and transportation companies) and the geographical scope of the SC (involving decisions about where to place the SC nodes, including plants, post-manufacturing and warehousing facilities). Some recent works (Macchion et al. 2015; Purvis, Gosling, and Naim 2014) explicitly analyse offshore outsourcing and manufacturing location decisions through a network lens (Verdu, Gomez-Gras, and Martinez-Mateo 2012; Ellram, Tate, and Petersen 2013).

The positioning of nodes and the scope of the network also influence transportation choices (between different modes such as air, sea, road and rail), inventory levels, SC length and lead times (Tate et al. 2014). These issues are sufficiently covered in the literature (McIvor 2013; Melo, Nickel, and Saldanha-Da-Gama 2009) which explicitly acknowledges successful offshoring as the ability to coordinate a geographically dispersed network of activities (Levy 2005).

Overall, previous research on offshoring and backshoring has intrinsically taken a network view assuming the impact of these choices on the scope, scale and nature of such networks. However, analysis of the complexity of the network needs to be fostered. Multiple actors should be taken into account in offshoring/backshoring research, going beyond the one shot analysis of a single move from the focal firm (a node) point of view. Recent research on SCM promotes the triad as the ‘smallest unit of a network’ (Mena, Humphries, and Choi 2013), which requires the reciprocal links among the actors to be assessed. More than the nodes, how do the links in a triad come into play in offshoring and backshoring decisions? How does this move by the focal company affect, and how is it affected by the subcontractor and the global logistics provider involved in the operationalisation of the new links? This final question leads to the second premise of the theory, discussed below.

FP 2) Offshoring and backshoring moves involve a dynamic and adaptive reconfiguration of the SC network

In the second premise, the theory of the SC (Carter, Rogers, and Choi 2015) strengthens the network view and endows it with a dynamic dimension. The SC is explicitly conceptualised as a Complex Adaptive System (Choi, Dooley, and Rungtusanatham 2001) where each actor ‘grapples with the tension between control and emergence’.

Offshoring and backshoring are intrinsically dynamic as they assume different previous choices (Gray et al. 2013) and both the terms offshoring and backshoring include a move from a previous situation: offshoring is opposed to local manufacturing and backshoring is opposed to offshoring and usually means bringing manufacturing back home. In this vein, scholars (Kinkel and Maloca 2009) have shown that offshoring is not an irreversible one-way process; within their sample, every fourth to sixth offshoring activity is countered by a backshoring activity in the following 4–5 years. Such a dynamic view is also inherent to research analysing the impact of various types of influencing factors (product, company, industry or environment related factors …) on the choice and outcome of offshoring and backshoring processes (Ellram, Tate, and Petersen 2013).

How can we frame these moves and changing decisions theoretically? The Transaction Cost Economy (Williamson 2008) and Resource Based View (Miles and Snow 2007) have been shown to be supporting theories for SCM. Offshoring and backshoring can also be effectively studied following such theoretical frames (McIvor 2013). Accordingly, some authors (Arlbjorn and Mikkelsen 2014) have leveraged the principles of dynamic capabilities theory (Eisenhardt and Martin 2000; Teece, Pisano, and Shuen 1997) to better understand offshoring and backshoring moves. In their view, offshoring and backshoring take part in a complex adaptive SC where external and internal skills and competences need to be reconfigured, integrated and adapted constantly. While most of these works remain theoretical, very recent research (Macchion et al. 2015) also provides empirical evidence to this view though cross sectional data.

However, most existing research does not view these moves as processes that are part of a global strategy in which different activities and actors interact with each other (McIvor 2013) and adjust over time to balance different forces. In line with other scholars (Ellram, Tate, and Petersen 2013; Gray et al. 2013; McIvor 2013), we believe that further research could bring additional insight into this topic analysing offshoring and backshoring processes as complex moving systems across time rather than a one-shot choice at a given time. For example, manufacturing location decisions are dependent upon, and in turn impact the geographic positioning of suppliers (raw materials, services, consumables, etc.) and customers (where are my customers?). Moving one actor (the manufacturing plant) in the complex network could affect the nature and location of other nodes, and the functioning of the related links. A full reconfiguration of the network is therefore expected until a new equilibrium is obtained, pending the stimulus of a new move (coming from changing internal or external conditions) that then triggers new adjustments. The dynamic evolution of such intricate dynamics and relationships merits further exploration aimed at grasping the determinants, effects and success or failure factors of offshoring and backshoring processes.

From a methodological point of view, more longitudinal case studies may be needed to highlight the overall process of offshoring/backshoring moves, if scholars agree on the complex network of actors in a SC and its adaptive nature. In order to reveal the complex adaptive system effects in offshoring and backshoring processes, longitudinal case studies centred on a relative SC (e.g. running shoe at Nike, cf. FP3) may provide a dynamic insight into the decision-making process that underlies in-company decisions to outsource, offshore, backshore or insource, while also taking into account the implications for the other actors in the network.

FP 3) Offshoring and backshoring decisions are relative to a particular product, context and actor

As highlighted by Carter, Rogers, and Choi (2015), the SC should be considered in the specific context of a product, industry, time, location and actor. Even within a specific company, the approach of the SC will differ from product to product, that is, involving different suppliers, customers, but also the type of service provided and the operational priorities. Similarly, the perspective of a specific SC will vary according to whether it is considered from the point of view of the raw material producer, the first-tier supplier or the manufacturer.

Such characteristics of the SC stand true when looking at offshoring and backshoring decisions, which are taken by managers and studied by academics in specific industries and cases: textile and apparel or electronics for far sourcing and product offshoring; information technologies for outsourcing and offshoring. This confirms the relevance of analysing these moves in their particular context.

This premise of the theory also suggests that decisions regarding offshoring or backshoring depend on the SC actor being considered. For example, a decision to move manufacturing operations to Asia may make sense from the point of view of a manufacturer aiming to decrease labour costs and target new markets; it may be less positive for its existing suppliers or logistics providers, however. We believe further research should help to fill this gap, and also to tackle the issue of how actors positioned at the convergence of multiple SCs arbitrate between contradictory drivers of, and obstacles to offshoring/backshoring moves. In the context of a specific industry, a few authors (Macchion et al. 2015; Stringfellow, Teagarden, and Nie 2008) have recently evidenced different paths in locating operations for different products, and underlined the benefits of ‘slicing’ SCs and making different decisions according to product features (level of innovation, price positioning, etc.), existing supplier networks and the location of raw materials and skills. While accounting for these criteria implicitly recognises the need to adapt the location decision and governance mode of every part of the SC to each specific product, existing research rarely tackles such a fine-grained level of analysis and tends to remain at the company level, identifying different ‘clusters of operations location choices’ (Macchion et al. 2015). Further research is therefore needed to account fully for the relative dimension of the SC and the impact of such characteristics on offshoring, outsourcing and backshoring decisions.

FP 4) Offshoring and backshoring impact both the physical and the support SCs

In the fourth premise, Carter, Rogers, and Choi (2015) argue that the SC includes not only the traditional flows (physical, information and financial flows) that are directly related to the movement of goods, but also the less considered support chain. As described by the authors, the support SC is made of ‘nodes through which the product does not flow but support the physical SC’ (Carter, Rogers, and Choi 2015, 91) and can include financial and insurance institutions or transportation companies (brokers or carriers) for example. While such an extended view of the SC has rarely been taken into account in SCM research, it is specifically relevant and impactful in the context of offshoring and backshoring decisions. This kind of move often implies large investments, increased risks (related to change in operations set-up, or to the institutional and competitive environment of the targeted foreign country when offshoring) and the need to re-examine the network of suppliers and providers. Offshoring and backshoring decisions therefore often lead to adjustments in nodes and links at the level not only of the physical, but also of the support SC. Interestingly, a lot of research into offshoring in strategic management literature focuses on IT and engineering services, including support functions such as call centres and help desks (Lewin and Peeters 2006). These works confirm that the support SC is often deeply affected by offshoring. Surprisingly, SCM research on offshoring and backshoring has not considered the support SC, whether in isolation or in interaction with the physical one, although they appear to be closely related. For example, when manufacturing is transferred from France to Turkey, it affects the physical SC, as plant, warehouses and transportation (among others) will be transferred to new actors, and flows will follow new routes. This will also impact the support SC as logistics providers may be changed, and new insurance policies and banking agreements must be signed. Overall, it would be beneficial to analyse offshoring and backshoring of both SCs, as well as the impact of these moves on their different nodes. Broader adoption in the literature of fine-grained mapping of both the physical and support SCs would also trigger more interdisciplinary research at the crossroads between strategic management and SCM. The interconnection and interdependence between the two SCs require multilevel analysis and could provide a better understanding of the drivers and effects of offshoring and backshoring moves.

The distinction between physical and support SCs seems all the more important for highlighting offshoring and backshoring patterns. While the literature on offshoring of services is rich and well informed, more efforts should be made to reconnect research on manufacturing location decisions and service location decisions, from an SCM perspective. In this way, a more holistic view could be derived and more robust guidelines could be proposed for managers to improve the overall network design of global SCs.

FP 5) Offshoring and backshoring decisions affect the focal company’s visible horizon which (FP 6) varies according to the geographical, cultural and administrative distance between the SC’s nodes

In these last two interrelated premises of the theory, the SC is bounded by the knowledge and awareness of a specific actor. Although SCs may embrace a very large network of entities, each actor in a specific SC will only be aware of a limited number of nodes and links. Beyond the awareness of the actor, the SC persists but cannot be acted on by this actor. The level of analysis should therefore be rather limited to the portion of the SC that is defined through the level of knowledge of the agent in question.

When companies decide to offshore, the visible horizon of the actor is likely to be affected, as the distance (Kostova 1999) between nodes is increased both geographically and often culturally and administratively (with outsourcing). Overall, as offshoring has been a popular move in several industries since the 2000’s, the visible SC tends to decrease. In this context, Kinkel (2014) points out that according to transaction cost theory, all administrative costs, such as coordination and quality management costs, are higher with growing physical and cultural distance because they are hard to transfer into foreign, far away realms. These are among the reasons why some companies have recently opted for the reverse move of backshoring, due to several difficulties mainly linked to ‘geographical distance, like disruptions of transportation […], and poor cooperation and misunderstanding due to cultural differences’ (Bals, Daum, and Tate 2015). It has been suggested that backshoring reduces distances and therefore extends the visible horizon of the focal company, increasing its influence on the SC, its output and performance (Kinkel and Maloca 2009). However, to properly assess the interest, risks and potential outcomes of offshoring and backshoring moves, premises 5 and 6 suggest that research should be conducted into the institutional environment of the different countries involved in the move. How do regulative, cognitive and normative distances (Kostova 1999) influence the decision-making process, the operationalisation of the move and the monitoring and control steps? Research on offshoring and backshoring has overlooked such important dimensions.

The increased importance of the visible horizon is also highlighted by growing demand for sustainability and transparency in SCs (Pagell and Wu 2009). Companies are increasingly being held responsible for the behaviour of their suppliers, and of their suppliers’ suppliers (Ellram 2013). This is the reason why rapid switches to lower cost suppliers have often come to be considered a highly risky approach to SC network design decisions (Fine 2013). Overall, through several initiatives and tools, such as supplier audits, codes of conduct and industry level initiatives, the visible horizon of the SC in sustainability-related issues has been increasing for the past few years. However, more research needs to be done to better understand the impact of the increased need for transparency and visibility in global SCs on offshoring and backshoring decisions. Alternatively, highlighting how offshoring and backshoring processes influence the degree and quality of visibility and transparency in the SC would also be extremely useful for companies to analyse the overall benefits, risks and costs of such moves properly.

Overall, the visible horizon, as a boundary to SC related decisions, should be more clearly conceptualised and empirically informed in offshoring and backshoring literature. Institutional literature could help to operationalise the factors affecting the visible horizon perimeter: institutional distance (Kostova 1999) at the context level, or institutional work (Lawrence, Suddaby, and Leca 2009) at a more individual level, could contribute to revealing critical success factors or reasons for failures in offshoring/backshoring moves.

Introduction of the articles in the special issue

We have highlighted several avenues for linking offshoring and backshoring literature more clearly to the theory of SC. In this special issue, the authors contribute to this understudied field in both its theoretical and empirical dimensions.

In their article on ‘Risks and Governance Modes in Offshoring Decisions: linking SCM and international business perspectives’, Andrea Patrucco, Vittoria Scalera and Davide Luzzini elaborate on alternative offshoring governance models derived from a taxonomy of offshoring risks. Their fine-grained analysis of different categories of risks and related governance structures may prove useful for managers to increase their awareness of their visible horizon during the offshoring process. Their results also contribute to shedding light on the cost-benefit analysis of offshoring decisions, providing guidance towards the best-suited governance model to pursue.

Although manufacturing location decisions have been on the agenda of managers and central to economic and managerial literature for decades, recent SC events and disruptions (both natural or man-made) call for new reflexion on these issues. Alain Spalanzani, Blandine Ageron and Iskander Zouaghi therefore share the results of their research in the article ‘Manufacturing Operations Location Decision: what are the main criteria?’. Drawing on different streams of the literature and relying upon a French-based survey of companies of different sizes and industries, they elaborate an integrative framework comprising three groups of factors affecting manufacturing location strategies: those related to performance and risks, to governance issues and to territorial attractiveness. They identify and prioritise location criteria for French companies, and offer food for thought to policymakers seeking to boost the attractiveness of their regions. Their framework implicitly provides additional support for the theory of the SC as it acknowledges several of its dimensions, such as the specificity of the context or the complexity of the network, including the support SC.

In the article ‘A Strategic Sourcing Evaluation Methodology for Reshoring Decisions’, Adrien Presley, Laura Meade and Joseph Sarkis provide a generic framework to help managers evaluate reshoring decisions from a SC perspective. Similarly to the well-known balanced scorecard, their framework includes financial, quantitative and qualitative metrics in parallel. Such a model has been proven useful for managers who have tested it. Their framework integrates a large number of criteria and acknowledges the complexity of the SC as approached by Carter, Rogers and Choi (2015), specifically in the context of reshoring decisions. Also, as outlined by Carter, Rogers and Choi (2015), Presley and colleagues emphasise the relative nature of the SC, in that the evaluation of reshoring decisions is highly dependent on the case being considered (industry, environment, type of management). Their model helps address such complexity and its adaptive nature.

The backshoring move is then analysed according to an interactive network approach by Alexandre Lavissière, Tibor Mandjak et Laurent Fedi in their article: ‘The Key Role of Infrastructure in Backshoring Operations: the case of Free-Zones’. Carrying out two case studies of backshoring in two different geographical contexts (U.S.A. and Mauritius), the authors shed light on how backshoring affects the nature of, and the interaction with local resources, thus revealing specific dynamics of nodes and links in the SC. In their article, Free-Zones can interestingly be considered as entities pertaining to the support SC and triggering backshoring decisions and processes.

Finally, in their article ‘Offshoring and backshoring manufacturing from a supply chain innovation (SCI) perspective’, Jan Stentoft, Ole Mikkelsen and Jesper Jensen contribute to the body of literature on offshoring and backshoring, with an empirical work aimed at linking alternative global manufacturing decisions with SCI strategies. In their work, SCI components refer to both organisational processes and technologies. Their holistic approach to global manufacturing strategy following the SCI perspective allows a new take on the debate around offshoring/backshoring, explicitly linking such decisions to different SCI profiles

Conclusions

In this editorial, we have read the offshoring and backshoring literature through the lens of the recently developed theory of the SC. We start by highlighting the relevance and richness of the recent theory of the SC as elaborated by Carter, Rogers and Choi (2015). Specifically, we show how offshoring and backshoring decisions can fit with each of the six premises. In this sense, we provide support to Carter et al.’s theory, as we show how offshoring and backshoring analysis can be enriched through the theory of the SC. Studying offshoring and backshoring through the lens of the theory of the SC allows a fresh perspective on this important topic and pinpoints the major gaps in the literature. Finally, we briefly introduce the five articles which have been included in this special issue. We specifically highlight how they contribute to filling research gaps in offshoring and backshoring literature, from an SC perspective.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Valentina Carbone

Valentina Carbone is Professor at the Paris Campus of ESCP Europe, in the Information and Operations Management Department. Her research interests are focused onto the organization and coordination of global supply chains. Her current research covers the sustainable dimension of SCM, corporate social and environmental responsibility, sharing and circular economy.

Valérie Moatti

Valerie Moatti is Professor at the Paris campus of ESCP Europe, in the fields of Strategy and Supply Chain Management. She is the Academic Director of Lectra Chair ‘Fashion & Technology’. Her research covers the strategic dimension of global supply chains and specifically the impact of supply chains on sustainable development and manufacturing location decisions and their influence on innovation.