Offshoring and Reshoring: An Update on the Manufacturing Location Decision

Abstract

This research uses data from a survey to explore the factors that affect organizations' manufacturing location decisions. Manufacturing location, more specifically the possibility of firms' nearshoring or reshoring, has received a great deal of recent attention, especially in the United States. 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. An exploratory factor analysis is used to develop factors that drive manufacturing location decisions. Multiple regression analysis is used to test the relationship between the drivers of manufacturing location decisions and movement of manufacturing into or out of a region, and overall perceived risk of a region. Findings indicate that various drivers have differential effects across regions. For example, while North America is viewed favorably for its trade policies over the next 3 years, the trade policies are also viewed as an increasing source of risk, possibly reflecting bipartisan conflicts. Three theoretical propositions are developed to advance the understanding of the current state of manufacturing location decisions from an internalization perspective. It appears that organizations are beginning to look at their manufacturing location decisions through a broader lens, giving more weight to supply chain issues as well as strategic factors.