Offshoring and Backshoring of Business Operations: Cost-effective competitive strategy or the next innovative step in business operations?

Abstract

The following paper draws the readers’ attention towards various dimensions and aspects of offshoring as well as backshoring. It attempts to define these aspects by taking into account various studies conducted to propose proper universal definitions of these terms. I will try to pinpoint various aspects that affect the decision-making of manufacturing and production firms while opting for offshoring and backshoring through a carefully conducted survey. This paper relies on the theoretical framework of one of the more recent multiple case studies regarding offshoring and backshoring. The framework of Fratocchi et al. (2018) will hopefully reinforce what was raised in their study i.e., whether the results were replicable with a larger or more diverse data sample and will confirm and increase support for generalisation for further research. I discuss the terms of the determinants that are the main causes of offshoring and backshoring motivations, as location is considered one of the more vital factors for a company’s business. I will therefore also shed light on the various aspects of location with relevance to the importance of offshoring and backshoring. I aim to describe the decision process and the resulting benefits or losses that are directly or indirectly related to location-related factors. The concepts of offshoring and backshoring are further explored and scrutinized by illustrating them in accordance with various theoretical perspectives, including Internationalisation theory, Transaction Cost Economics (TCE), Resource-Based View (RBV), and Dynamic Capabilities Theory. I will review literature to examine the challenges and risks involved in offshoring and how, or if, they significantly relate with backshoring. Furthermore, I will discuss the decision-making process that is involved in adopting an offshoring or backshoring strategy.