Disintegration and Re-Integration of the Value Chain: Preliminary Evidence on the Re-Shoring of Business Services

Firms started to delocalize production activities in the sixties in order to take advantage of lower labor costs in developing countries. This phenomenon is known with the term offshoring and it refers to the fragmentation of business activities along the value chain and to their delocalization in different countries. Thanks to advances in ICT, knowledge-intensive functions have been increasingly offshored to emerging economies (Blinder, 2006; Lewin et al., 2008). This phenomenon raises concerns in the public opinion, media and policy makers for its potential negative effects, such as the rise of unemployment also among skilled workers and the loss of core competencies in rich countries.

Recently several companies started to relocate their activities closer to the home country. Innovative and productive functions are affected by strong complementarities (Berry, 2014), and for some firms the co-location of R&D and production is critical for innovation (Alcacer & Delgado, 2014). Pisano and Shih (2012) argue that the offshoring of production is threatening the innovation capability of the US. Thus Obama’s administration is challenging traditional free-trade cornerstones and it is trying to bring back to the US some production activities. This phenomenon is known with the term re-shoring and it is not new; however the existing literature has been traditionally focussed on the relocation of manufacturing operations (Ellram, 2013; Ellram et al., 2013; Fratocchi et al., 2014; Kinkel & Maloca, 2009), and very little is known regarding the re-shoring of business functions, thus this paper sheds light on the re-location of previously offshored business services.

Given the diversified and sometimes contradictory terminologies regarding the re-shoring phenomenon, in this paper we adopt the definition suggested by Fratocchi et al. (2014, 56), according to whom: (i) the term re-shoring refers to a “generic change in location with respect to a previous offshore country”; (ii) back-reshoring relates to the relocation back to the home country; and (iii) near-reshoring means that business activities are transferred “to another country geographically closer to the firm home country”.

The dataset adopted is the one developed by the Offshoring Research Network (ORN). The ORN survey has been originally developed in 2004 by the Center for International Business Education and Research (CIBER) of the Duke University in the United States. The reliability of the ORN dataset is witnessed by the several publications it allowed in some of the most recognized journals in the field of International Business and Management; just to mention three of them: Larsen et al. (2013); Lewin et al. (2008); Manning et al. (2008). The latest release of the database issued in 2011 counts 5,619 observations of offshoring ventures. The most interesting preliminary findings are that the relocation phenomenon is growing over time and its flow is not necessarily from developing towards advanced countries.