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.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Offshoring; foreign direct investment; internationalisation; production
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements

References

BCG (2011), Made in America. Why Manufacturing will return to the US. The Boston Consulting Group, Chicago.

Dachs, B., Ebersberger, B., Kinkel, S., and Waser, B. (2006), Offshoring of production – a European perspective. Frequency, target regions and motives. EMS Bulletin, Karlsruhe.

Johanson, J., and Vahlne, J.E. (1977), The internationalization process of a firm: a model of knowledge development and increasing foreign market commitments, Journal of International Business Studies, Vol. 8, No. 1, pp. 23-32.

Johanson, J., and Vahlne, J.E. (1990), The mechanism of internationalization, International Marketing Review, Vol. 7, No. 4, pp. 11-24.

Kinkel, S., Maloca, S. (2010), Verlagerungsverhalten im Zeichen der Wirtschaftskrise: Produktions- und Rückverlagerungen der deutschen Industrie, ZWF Zeitschrift für wirtschaftlichen Fabrikbetrieb, Vol. 105, Nr. 4, pp. 362-368.

Kinkel, S., and Maloca, S. (2009), Drivers and antecedents of manufacturing offshoring and backshoring – a German perspective, Journal of Purchasing & Supply Management, Vol. 15, No. 3, pp. 154-165.

Kinkel, S., Lay, G., Maloca, S. (2007), Development, motives and employment effects of manufacturing offshoring of German SMEs, International Journal of Entrepreneurship and Small Business, Vol. 4, No. 3, pp. 256-276.

Markusen, J. R. (2002), Multinational Firms and the Theory of International Trade, Cambridge [Mass.] and London, MIT Press.

Stehrer, R., Borowiecki, M., Dachs, B., Hanzl-Weiss, D., Kinkel, S., Pöschl, J., Sass, M., Schmall, T.C., and Szalavetz, A. (2012), Global value chains and the EU industry, Background Report to the 2012 European Competitiveness Report, Vienna.