An empirical analysis of the profitability of backshoring initiatives to Europe

Purpose: The study investigates the profitability of manufacturing firms backshoring (BS) to Europe. In particular, the article analyses the relation between BS drivers and post-relocation profitability and tests whether this relation is moderated by innovation policies that firms adopt in conjunction with BS. Design/methodology/approach: The empirical model links the post-relocation profitability to BS drivers, firms’ involvement in product innovation and/or adoption of new manufacturing technologies. Data concerning BS initiatives to Europe between 2012 and 2018 extracted from secondary sources have been matched to firms’ balance sheet data. Findings: Results show that responsiveness-driven BS is associated with higher profitability when the relocation is coupled with product innovation. A second key finding is that the adoption of new manufacturing technologies has a positive impact on post-BS profitability. Research limitations/implications: The restriction of the dataset to firms for which information on post- and pre-BS financial performance was available has led to a small sample size. Availability of longer time series of profitability data will allow estimating long-term impact, especially for innovation. Practical implications: The study provides first evidence on the impact of BS on financial performance and throws light on the relevance of innovation as a lever supporting manufacturing relocation to high-cost countries. Originality/value: The study advances empirical research on BS by offering evidence of its impact on profitability and by linking it to previous research on BS drivers. Further, the study throws light on the role of different drivers as “success factors” of BS and on how they interact with innovation efforts. The study also offers insights to business leaders who are evaluating the potential benefits on company profitability of a return to a high cost-environment and provides useful indications on the conditions under which BS pays off.