Paradigm shifts of global sourcing strategy : the investigation of reshoring phenomenon

Abstract

The global business environment has become unpredictable with a series of rapid trade policy alterations initiated by the United States (U.S.). Trade policies impact the host country's sourcing decisions in the home country or the trade dynamics between two countries. With protectionism, firms are facing the challenges of the existing offshoring tactic. The speedy growth of labor costs pushes the firms to revisit their sourcing plan to sustain. The firms are concerned about a paradigm shift from low-cost offshoring production to low total ownership cost (TCO) countries. This thesis examines the reshoring phenomenon comprehensively in the following three studies. A Citation Network Analysis is the first study systematically reviewing 162 reshoring-related articles in economics, business, management, and operation management literature. Citation Network Analysis identifies five significant clusters, and the main path analysis offers the significant pieces in the clusters. This review provides insight and a research gap for further investigation with a better understanding. In the first empirical study, we conducted a short-term event study to explore the market reaction to the impact of reshoring announcements. This study is based on 281 reshoring announcements by 132 U.S. firms between 2009 to 2022. Our empirical analysis reveals that the market reacts to a firm’s reshoring announcement more positively when the firm reshores under a high currency fluctuation environment and/or from countries with weak intellectual property (IP) protection. However, the market reacts more negatively when the firm’s reshoring announcement entails insourced reshoring (vs. in-house reshoring) operations and/or when the reshored location is a Democratic- rather than Republican-led state. The second empirical study reviews the top management team's (TMT) likelihood of reshoring decisions. We collected TMT and financial data from the publicly listed U.S. firms that announced a reshoring decision between 2010 and 2020. To compare the TMT diversity of firms with reshoring decisions to those without, we constructed a set of control firms that did not make reshoring announcements during this period. Our dataset contains 176 observations from 73 reshoring firms, with 8,424 observations across 1,146 listed manufacturing firms. We then applied a probit regression model to examine the direct effects of TMT characteristics and the potential differences in the role of TMTs with reshoring initiative likelihood. We found that TMT with higher nationality diversity, lower average age, and larger board sizes with fewer independent directors are more likely to reshore than older and smaller management boards. Although fewer independent directors cannot provide a diversified experience to TMT, without a clear picture of the global market, TMT will be more confident to reshore in the U.S..