Why in the world did they reshore? Examining small to medium‐sized manufacturer decisions

• Author: Keith Skowronski,John V. Gray,M. Johnny Rungtusanatham,Gökçe Esenduran
• DOI: http://doi.org/10.1016/j.jom.2017.01.001
• Published date: 01 March 2017
• Date: 01 March 2017

Why in the world did they reshore? Examining small to medium-sized

manufacturer decisions

John V. Gray

a

,

*

,G

€

okçe Esenduran

a

, M. Johnny Rungtusanatham

a

, Keith Skowronski

b

a

Fisher College of Business, The Ohio State University, 2100 Neil Avenue, Columbus, OH 43210, United States

b

Darla Moore School of Business, University of South Carolina, 1014 Greene Street, Columbia, SC 29208, United States

article info

Article history:

Accepted 6 December 2016

Available online 1 March 2017

Accepted by Mikko Ketokivi.

abstract

Small to medium-sized enterprises (SMEs) are moving their manufacturing operations from low-cost

countries back to high-cost countries, reversing earlier offshoring decisions. These reshoring decisions

cannot be completely explained by changing location-related costs. To better understand why SMEs are

reshoring, we evaluate nine product-line decisions esix to reshore and three to remain offshore eand

codify four empirical observations. We then integrate these observations with relevant literature to

develop and analyze a system dynamics model of SMEs' offshoring and reshoring decisions. Synthesizing

the above, we articulate propositions regarding SMEs’reshoring decisions. We conclude by discussing

these decisions through the lens of the heuristic decision-making literature, providing managerial and

policy implications.

©2017 Elsevier B.V. All rights reserved.

1. Introduction

U.S. manufacturers of all sizes across diverse industries are

reshoring operations (Sirkin et al., 2011), “moving manufacturing

back to the country of its parent company”(Ellram, 2013: p.3) and

effectively reversing a previous offshoring decision. While the

definition of “offshore”varies in the literature, it typically refers to

low-cost locations, a convention we adopt. Once reshored, the

company or its domestic suppliers take over manufacturing oper-

ations (Gray et al., 2013). General Electric, for example, reshored its

appliance manufacturing in house. Vaniman Manufacturing, in

contrast, decided to procure sheet metal fabrication from a U.S.-

based, instead of a China-based, supplier. These are but two of

many recent reshoringexamples reported in the popular press (e.g.,

Hagerty, 2013) and the literature (e.g., Gylling et al., 2015). This

trend has generated excitement among high-cost country policy

makers seeking to recover offshoring-related manufacturing job

losses that began in the 1990s (Selko, 2013), as well as thosewho

argue that domestic manufacturing drives innovation (Bonvillian,

2013).

Our study focuses on small to medium-sized enterprises (SMEs)

with headquarters and demand in the U.S. that have reshored their

operations from suppliers in low-cost locations in Asia. The six

reshoring decisions we study reversed prior resource- or efficiency-

seeking, rather than market-seeking,

1

offshoring moves (Dunning,

1988). Factors such as changing exchange rates and rising labor

and energy costs in Asia (particularly China) did not appear to have

increased total landed costs enough to justify reshoring. As evident

in Table 1,location decisions involve many factors, some difficult to

quantify. Many of these factors can be found in the practitioner-

focused Total Cost of Ownership Estimator (Moser, 2011).

The reshoring decisions analyzed in our study, per the classifi-

cation of Knight (1921), were made amid uncertainty (i.e., all

possible outcomes and their probabilities are unknown, possibly

unknowable) as opposed to under risk (i.e., all possible outcomes

and their probabilities are known). As complete quantitative anal-

ysis to enable optimal decisions in such situations is not feasible

(Simon, 1979) and the decision-making processes of SMEs are less

well-understood than those of larger firms (Busenitz and Barney,

1997 ), we focus on answering the following two specific ques-

tions: (a) What drives SME reshoring decisions? and (b) How do

SME managers make them?

Note that the SMEs we studied make products with high labor

*Corresponding author.

E-mail addresses: gray.402@osu.edu (J.V. Gray), esenduran.1@osu.edu

(G. Esenduran), rungtusanatham.1@osu.edu (M.J. Rungtusanatham), keith.

skowronski@moore.sc.edu (K. Skowronski).

1

In market-seeking location decisions, firms locate either to be close to demand

or to ease entry into a foreign market.

Contents lists available at ScienceDirect

Journal of Operations Management

journal homepage: www.elsevier.com/locate/jom

http://dx.doi.org/10.1016/j.jom.2017.01.001

0272-6963/©2017Elsevier B.V. All rights reserved.

Journal of Operations Management 49-51 (2017)37e51