Drivers and antecedents of manufacturing offshoring and backshoring—A German perspective Steffen Kinkel à , Spomenka Maloca Fraunhofer Institute for Systems and Innovation Research (ISI), Breslauer Straße 48, 76139 Karlsruhe, Germany article info Article history: Received 14 November 2008 Received in revised form 16 May 2009 Accepted 18 May 2009 Keywords: Production offshoring Backshoring Location decisions Risk assessment German manufacturing industry abstract Discussions on the potentials and risks of the relocation of manufacturing activities to low-wage countries have resurged in recent years in the wake of a new globalisation debate. Manufacturing offshoring has become an increasingly interesting option for firms of all sizes. Besides the chances to improve the company’s cost position, the risks of production offshoring are also evident. An analysis of the manufacturing offshoring and backshoring activities of 1663 German manufacturing companies shows that production offshoring has currently lost momentum. On the other hand, backshoring of once offshored manufacturing capacities is also a quantifiable phenomenon. Every fourth to sixth offshoring activity is followed by a backshoring activity within the following 4 years, mainly due to lack of flexibility and quality problems at the foreign location. A deeper, qualitative analysis in 39 German manufacturing companies shows that not all companies do pay sufficient attention to qualitative factors crucial for success and competitive advantage in their location decisions. Thus, managerial implications for a systematic location planning process are drawn from our findings. & 2009 Elsevier Ltd. All rights reserved. 1. Introduction Public interest in the drivers and the consequences of the ongoing relocation of manufacturing activities to foreign coun- tries, namely Eastern Europe and Asia, has resurged in recent years in the wake of a ‘‘new’’ globalisation debate. Whereas in the past research focused predominantly on large multinational companies’ (MNCs) activities (e.g. Ayal and Zif, 1979; Buckley and Casson, 1976; Caves, 1982), today more and more small- and medium-sized companies (SMEs) also engage in international production. Particularly manufacturing offshoring as one mode of foreign direct investment is becoming an increasingly interesting option for firms of all sizes (Mucchielli and Saucier, 1997; Pennings and Sleuwaegen, 1997). Due to the long-term impact on the competitiveness of the company, offshoring decisions are key aspects of strategic enterprise positioning (Dunning, 1988; Ferdows, 1997; Hill et al., 1990; MacCarthy and Atthirawong, 2003), and they also play a crucial role for the competitiveness and the labour market of the regional and national economy (Porter, 1990, 1998). Empirical studies often fail to take into account that manu- facturing offshoring does not necessarily have to be an irrevocable process. Backshoring activities of once offshored manufacturing capacities from foreign locations back to the domestic location are quite common phenomena (Kinkel et al., 2007). Reasons for failures resulting in backshoring operations stem from lack of knowledge about the foreign destination and from lack of systematic location planning (Anderson et al., 1998; Truijens, 1992). Thus backshoring of manufacturing capacities might be a quantifiable phenomenon, but reliable data are not yet diffused in academic discussion. This paper analyses the driving factors and antecedents of manufacturing offshoring and backshoring by utilising the database of the German Manufacturing Survey (GMS). This survey covers 1663 German companies, providing a representative database for all manufacturing sectors. These results will be backed up by deeper, qualitative analysis in 39 German manu- facturing companies, analysing the main success factors, but also risks and shortcomings of cost-oriented location decisions for foreign production. 2. Theoretical background Internationalisation of manufacturing activities via foreign direct investment has been researched theoretically and empiri- cally for quite a while (e.g. Dunning, 1980, 1988; Vernon, 1966). Recent studies show that in particular the relevance of offshoring activities to low-wage countries, in terms of a vertical relocation of production to foreign locations, has grown again lately (e.g. Aron and Singh, 2005; Doh, 2005; Farrell, 2005). Today, besides MNEs, more and more SMEs are offshoring production activities ARTICLE IN PRESS Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/pursup Journal of Purchasing & Supply Management 1478-4092/$ - see front matter & 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.pursup.2009.05.007 à Corresponding author. Tel.: +49 72168 09 311; fax: +49 721689152. E-mail address: steffen.kinkel@isi.fraunhofer.de (S. Kinkel). Journal of Purchasing & Supply Management 15 (2009) 154–165