Munich Personal RePEc Archive

The Offshoring of Production Activities in European Manufacturing

Dachs, Bernhard and Borowiecki, Marcin and Kinkel, Steffen and Schmall, Thomas Christian (2012): The Offshoring of Production Activities in European Manufacturing.

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We investigate production offshoring – the relocation of production activities to locations abroad – of European firms. The analysis employs data from the European Manufacturing Survey (EMS).

Offshoring activity is declining across most countries, sectors, and firm sizes between the periods 2004/06 and 2007/09. Regression analysis reveals that this decline is also significant after controlling for firm characteristics. Long-term data for Germany indicate that this decrease is part of a longer trend which already started in 2003. Despite the general decrease in offshoring, far-shoring to Asia in general and to China in particular has increased. In contrast, near-shoring to EU member states in Middle and Eastern Europe (EU-12) became less attractive. The EU-12, however, is still the most important target region for offshoring activities of European firms.

The dominant motive for offshoring is the wish to reduce labour costs. Expected labour cost reductions explain offshoring to the EU-12, Asia and China in particular. Vicinity to customers and market expansion follow as a motive with a wide margin. However, in contrast to the EU-12, where the offshoring decision is solely dominated by potential labour cost savings, offshoring activities to Asia and China are also significantly related to market expansion motives.

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