Is Reshoring Better Than Offshoring? The Effect of Offshore Supply Dependence

Abstract

In this paper we investigate the effect of offshore supply dependence (OSD) on offshoring–reshoring profit comparisons. We find that OSD hampers a reshoring manufacturer’s responsiveness to demand information updates and may significantly affect offshoring–reshoring comparisons, such that reshoring may yield lower profits than offshoring in many cases, including when offshoring has no baseline-cost advantage. We then show that OSD also affects how salient costs such as customs duties and shipping costs influence offshoring–reshoring profit comparisons. We further identify common-component designs as a mitigating measure to make reshoring more appealing under OSD, and numerically confirm the robustness of our results. The online appendix is available at https://doi.org/10.1287/msom.2016.0604 .