1 Introduction
2 Research context
2.1 Operationalization of industry 4.0 adoption
2.2 Relevance of respective digital technologies for specific backshoring rationales
Production strategy | Corresponding technologies according to Ancarani and Di Mauro (2018) | Corresponding technologies according to Fratocchi and Di Stefano (2019) |
---|---|---|
Cost-oriented | Robotics, automated machinery | Automated machinery |
Flexibility-oriented | Robotics, automated machinery | Robotics, automated machinery |
Quality-oriented | 3D printing | 3D printing, CPS |
2.3 Contextualizing the role of technology in backshoring decisions
3 Methods
3.1 Empirical setting
3.2 Research activities
3.2.1 Survey-based research activities
Rüßmann et al. (2015) | Digital Transformation Monitor of the European Commission | This paper | Ancarani and Di Mauro (2018) | Dachs et al. (2019) | Fratocchi and Di Stefano (2019) | Chiarvesio and Romanello (2018) | Stentoft et al. (2020) |
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1-Internet of Things | X | x | Stentoft et al. (2020) | X | X | ||
2-Cloud Technologies | X | x | X | X | |||
3-Big Data Analytics | X | x | X | X | |||
4-Virtual Simulation Systems | x | X | Proxy = Simulation | ||||
5-Augmented Reality | x | X | X | ||||
6-Additive manufacturing / 3D Printing | X | x | X | X | X | X | X |
7-Horizontal and Vertical systems integration | Proxy = Machine-to-Machine communication in cooperation with suppliers and/or clients | Proxy = Digital exchange of data with suppliers / customers + Near real-time production control systems | x | x | |||
8-Autonomous robots | Proxy = robotics | Proxy = robotics | Proxy = robotics | Proxy = robotics | Proxy = Autonomous and collaborative robots | x | |
9-Cybersecurity | X | x | X | X | |||
Additional technologies | |||||||
Artificial Intelligence | x | x | X | ||||
Automated Machinery | x | x | X | ||||
Cyber-Physical Systems | x | X | Proxy = Technologies for human–machine interaction | ||||
Digital Visualization | x | ||||||
Mobile Services | X | x | Mobile / wireless devices for providing services | Mobile technologies | |||
Product-Lifecycle Management Systems | X | ||||||
RFID and Real-Time-Location Systems (RTLS) technologies | x | ||||||
Social Media | X | x | |||||
Systems for automation of internal logistics | X |
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Size in terms of revenue and employees
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Value chain position
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Principal products and market offerings
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Foreign branch plants
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Adoption of digital technologies
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Intentions to backshore manufacturing activities
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“manufacturer of finished products for other industrial firms,”
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“supplier of parts or components to other industrial users,”
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“system provider to other industrial users” or
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“provider of industrial services.”
Number of employees | % of sample |
---|---|
Less than 10 | 0% |
Between 10 and 49 | 13% |
Between 50 and 249 | 46% |
More than 250 | 41% |
Business activity | % of sample |
---|---|
Manufacturer of finished goods for industrial customers | 54% |
Supplier of parts or components for industrial customers | 27% |
Systems provider for industrial customers | 10% |
Provider of industrial services | 10% |
3.2.2 Case-based research activities
Company | Approximate turnover in 2018 in million euros | Industry | Backshoring from/to |
---|---|---|---|
A | 250 | Electric power systems | Brazil to Spain |
B | 125 | Bicycles | China to Spain (and Portugal) |
C | 200 | Home appliances | Brazil to Spain |
F | 250 | Kitchen equipment | China and Turkey to Spain |
I | 700 | Vehicles | China and India to Spain |
N | 25 | Metal mechanics | China to Spain |
O | 400 | Electric power systems | Brazil and Turkey to Spain |
S | 100 | Hand tools | Argentina and China to Spain |
T | 10 | Casting technologies | China to Spain |
4 Findings
4.1 Descriptive survey-based results
4.1.1 Adoption level of digital technologies
4.1.2 Interaction between adoption of digital technologies and backshoring decisions
4.2 Regression results based on survey data
4.2.1 Testing at the aggregated level of the Industry 4.0 technology set
4.2.2 Testing the relevance of individual technologies for backshoring
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Artificial Intelligence: not significant (0.815)
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Automated Machinery: not significant (0.707)
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Cyber-Physical Systems: not significant (0.202)
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Mobile Services: not significant (0.870)
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Social Media: not significant (0.148)
4.2.3 Testing the relevance of individual technologies for specific backshoring rationales
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Artificial Intelligence: not significant (0.414)
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Automated Machinery: not significant (0.339)
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Cyber-Physical Systems: not significant (0.707)
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Mobile Services: not significant (0.938)
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Social Media: not significant (0.181)
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Artificial Intelligence: not significant (0.962)
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Automated Machinery: not significant (0.339)
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Cyber-Physical Systems: not significant (0.707)
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Mobile Services: not significant (0.580)
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Social Media: not significant (0.938)
4.3 Case-based research results
4.3.1 The role of technology in backshoring decisions
Industry 4.0 technologies | Company A | Company B | Company F | Company I | Company N | Company O | Company S |
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Internet of Things | X | X | X | X | X | ||
Cloud Technologies | X | X | X | ||||
Big Data Analytics | X | X | X | ||||
Virtual Simulation Systems | X | ||||||
Augmented Reality | X | ||||||
Additive manufacturing / 3D Printing | X | X | X | X | |||
Horizontal and Vertical Systems Integration | X | X | X | X | |||
Robotics | X | X | X | X | X | X | |
Cybersecurity | X | X | X | X | X | ||
Additional technologies | |||||||
Artificial Intelligence | X | X | |||||
Automated Machinery | X | X | X | X | X | X | X |
Cyber-Physical Systems | |||||||
Mobile Services | X | X | X | X | |||
Social Media | X | X | X | X | X | X |
Company and country where it set up production | Year of opening / acquisition of plant and year of closure / sell-off / reduction of activity | Entry mode | Why offshore? | Why backshore? |
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Company B-China Company F-China Company I-China | 2007–2015 2007–2015 1995–2012 | Greenfield FDI Greenfield FDI Greenfield FDI | Expectation that the Asian market for premium bicycles, robust kitchen equipment and high-end buses would grow “Market-seeking” Company B and F form part of an industrial cooperative and together with several fellow cooperative firms these two companies decided to set up shop in an industrial park that would only shelter affiliates of this Basque cooperative “Bandwagon effect” | Companies B and I targeted premium market segments whose sales results in the Chinese and adjacent markets remained below expectations Company F’s products did match local pockets of demand, but the company found it hard to stand out among local producers of similar products, so the lack of competitive advantage or the lack of appreciation for its superior value caused it to lose ground in the market Consequently, the plants of companies B and F ended up producing for export markets, although they were intended to produce for local markets |
Company N- China | 2004–2015 | Greenfield FDI | Chop up the value chain by locating design activities in Europe and production activities in China. Seize cost advantages through offshoring manufacturing “Efficiency-seeking” | The Chinese plant of Company N produced a lot for the European and the North American market Over time, manufacturing in the Eurozone became more attractive, as producing in China started to get more expensive. Also, from a trade perspective, it became of increasingly greater interest to produce within the Eurozone, as the United States taxes imported bearings from China more heavily than when they are produced in Europe Company N also pointed out internal financial and investment issues: due to a lack of resources to keep the multinational structure that the firm had created intact, it was forced to reconsider its international strategy and overseas production activities Similarly, as the company opted for more R&D-intensive and high-end products, it decided to pull back into its home base and concentrate its activities in the Basque Country |
Company S-China | 2008 to present (although production has been transferred to Europe) | Greenfield FDI supplemented by takeover of local player with multiple plants | Company S merged with peers from Northern Europe and the United States. The joint holding counted with an own Chinese factory and went on a take-over spree in China. The outcome was an ensemble of plants in China and a sub-optimal distribution of “which plant produces what for which markets” “Strategic asset-seeking” | In this case, restructuring and rationalization of the global production apparatus and the respective “origin” (where they produced)– “destination” (which markets they supplied) relations constituted the trigger for backshoring operations This meant that Company S decided that part of the Chinese production for the Northern European market would be manufactured within Europe This was done for reasons of both logistics and quality, but also since the advanced adoption of new production technologies at European production sites made them more cost competitive than before |
Company I-India | 2001–2015 | Joint venture with two local partners, making use of existing production facilities at first and adding a greenfield plant in 2010 | Expectation that the Asian market for high-end buses would grow “Market-seeking” | Company I suffered from a lack of appreciation of its premium products and high-safety buses, as well as disappointing forecasts for the high-end coachwork segment in the Indian market Admittedly, the firm may not have planned the market entry very well, in the belief that having a production presence in the (BR)IC countries was a must and being advised by third parties that the growth possibilities for its product line in the Indian market would be substantial |
Company F-Turkey Company O-Turkey | 2006–2016 1999–2006 | Greenfield FDI Greenfield FDI | Sales potential on the domestic (hotel) market “Market-seeking” Relatively well- skilled human resources and supply chain “Resource-seeking” | Company F and Company O blamed turmoil in the domestic (Turkish) market—both from an institutional point of view and as regards sales forecasts—for their decisions to withdraw Both also suffered from a lack of appreciation for their products by local customers, who generally showed a low willingness-to-pay and a tendency to settle for copycat products On top of this, both Company F and Company O indicated that their products manufactured in Turkey were not suitable for other markets, reducing the possibility of fitting the Turkish plant into their overall international business strategy Over time, declining sales meant that maintaining a dedicated plant for the Turkish market became unsustainable for both companies |
Company A-Brazil Company O-Brazil | 2003–2017 (sell-off to a competitor) 2005–severe reduction in activities since 2016 | Take-over of existing local company Greenfield FDI | Take-over of diverse kernels of knowledge and technology bases for subsequent transfer and roll-out across the globe “Strategic asset-seeking” (Company A only) Entry to seize sales potential on domestic market “Market-seeking” (both companies) | Both cases suffered from a worsening of domestic market conditions and sales outlooks At the same time, the Brazilian plants were faced with growing environmental uncertainties, including: union pressure, tariffs on parts imports, ineffective functioning of local (segments of the) supply chain The two companies characterized Brazil as a challenging country, administratively speaking, with a lot of red tape and a highly politicized business life The subsequent institutional uncertainties made it unattractive to continue producing in Brazil Furthermore, Company A and Company O pointed to a lack of strategic fit between their Brazilian products/manufacturing activities and their evolving core business and international business activity. In the end, the Brazilian activities became increasingly disconnected from the companies’ product and technology portfolio, leading to a phasing out of Brazilian production operations |
Company S-Argentina | 1963 to present (although production has been transferred to Europe) | Greenfield FDI | Company S merged with peers from Northern Europe and the United States. While Company S already had a branch plant in Argentina since decades, the joint holding also took over an additional factory in Argentina. The outcome was a redundancy in production capacity and a sub-optimal distribution of “which plant produces what for which markets” “Strategic asset-seeking” | Similar to the experience of Company S in China, the Argentinian backshoring case is a consequence of restructuring and rationalization of the company’s global production apparatus and its respective “origin”– “destination” relations Within this context, it was decided that the Argentinian production for the US market would be manufactured in Europe The decision to transfer US-bound production out of Argentina was based on logistics, quality and cost arguments. As far as cost reductions were to be gained from this transfer, they were fueled by the superior level of automation and technological progress at the European plants compared to the one in Argentina |
5 Discussion
5.1 Level of digital technology adoption
5.2 Frequency of backshoring
5.3 Interdependences between digital technology adoption and backshoring decisions
5.4 The role of individual digital technologies for backshoring
5.5 Contextualizing the role of technology in backshoring decisions
Organization-specific disadvantages | Location-specific disadvantages of offshore production sites | Behavioral uncertainties | Environmental uncertainties | Internalization disadvantages | ||||||||
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Company | Product–market mismatch | Eroding sales in markets that the offshore site is intended to serve | Lagging production technology level compared to plants elsewhere (notably in the home base) | Rising cost level | Quality issues | Distance to (unforeseen) end markets | Distance to corporate R&D or design assets | Erroneous forecasting | Predictability of local staff behavior and performance | Institutional uncertainty (political instability, turbulent industrial relations, trade barriers) | Rationalizing product(ion) portfolio across manufacturing sites | Resource shortages (finance, staff) to coordinate foreign operations |
A | X | X | (X) | X | X | |||||||
B | X | X | (X) | X | ||||||||
F | X | X | (X) | X | X | |||||||
I | X | X | ||||||||||
N | X | X | X | X | ||||||||
O | X | X | (X) | X | X | |||||||
S | X | X | X | X | X |