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Top1. Introduction
Companies are increasingly expanding their operations beyond their national borders by relocating certain value chain activities abroad. They are able to fragment operations internationally, locating each stage of production in countries where they can be performed at lower cost or in a more efficient way. At the same time, they diffuse ideas and knowledge of new products and spread technology-advanced processes around the globe.
Multinational Enterprises (MNEs) are key players of the globalization process, as they have largely exploited the benefits coming from a greater interdependence of markets, ensuring great economies of scale in production, distribution, marketing and management, see e.g. Levitt et al. (1983). In this respect, the new economic geography (NEG), originated by the seminal contribution by Krugman (1991) and based on imperfect competition with increasing returns to scale, factor mobility, presence of trade and transportation costs, constitutes an important stream of literature for the study of the geographic distribution of industrial activity. Multinational Enterprises often offshore their manufacturing activities in developing economies, attracted by cheaper labor costs, cheaper raw materials, lower taxes and lenient legislations. However, technological developed countries may be attracting because of higher labor productivity due to advanced R&D, larger presence of skilled workers and industrial districts endowed with efficient infrastructures and cost-reducing R&D spillovers, and this may erode the initial cost-advantage of offshoring and consequently cause reshoring of firms towards developed countries.
Figure 1 shows a survey of Eurostat on European enterprises. It was asked what are the main motivational factors for international sourcing, namely the total or partial movement of business functions (core or support business functions) currently performed in-house, or currently domestically sourced, by the resident enterprise to either non-affiliated (external suppliers) or affiliated enterprises located abroad (Sunjka and Papadopoulos, 2019). We can see that one of the main driver of offshoring is the reduction of labor costs (for almost 90% of the firms interviewed), followed by the reduction of other costs, and the strategic decisions taken by the group head. In the following, we will discuss more in detail what might be the strategic motivations behind this latter factor, referring to e.g. Hymer (1960), Dunning (1979). Of lesser importance are market driven factors such as access to new markets, improved quality and introduction of new products. In addition, access to specialized knowledge/technologies and the research of qualified labor are not, on average, the most relevant motivation for international outsourcing or offshoring.
Figure 1.
Motivational factors important for enterprises sourcing internationally (2014-2017), experimental statistics. Source: survey from Eurostat (iss_18sodest), Sunjka and Papadopoulos (2019)
Conversely, Figure 2, drawn from the same Eurostat database, highlights the main motivational factors for European enterprises to move back (i.e. reshoring) functions from abroad. In this case, strategic decisions of group head account for almost the totality of the sample (more than 90%), followed by insufficient quality of products/services and infrastructures, lack of qualified personnel and lower labor productivity at the foreign location. The majority of the causes/driver of reshoring focuses on the scarce labor productivity, on the lack of public goods, qualified workers, networks and technology offered by the low-labor cost foreign economies.
Figure 2.
Motivational factors important for enterprises to move functions from abroad (2014-2017), experimental statistics. Source: survey from Eurostat (iss_18sodest). Sunjka and Papadopoulos (2019)