The Economic Geography of Offshoring: The Fit between Activities and Local Context

We draw from the literature on economic geography and from the thematic offshoring literature, and propose three hypotheses that rest on the assumption that the choice of offshoring location is based on the fit between the attributes of different destinations and the attributes of the offshored business activities. The study reveals a multi-faceted location pattern in which firms' location strategies, to some degree, follow a logic whereby manufacturing is relocated to low-cost destinations, and research and development is relocated to high-cost destinations. However, the picture is more nuanced when distinguishing between standardized and advanced activities. Asia attracts as many advanced activities as Western Europe while North America attracts more advanced activities even in manufacturing. Central and Eastern Europe attract offshoring in manufacturing and IT, but the activities that are offshored to these regions are typically not advanced. One important theoretical implication of this study is that a more detailed understanding of the nature of offshored activities is needed, since such attributes appear to be an important determinant of location choice.