Bring innovation back! An empirical analysis of innovation outcomes of U.S. companies

Purpose This paper aims first to confirm on a large scale whether back-shoring facilitates innovation. Furthermore, this paper aims to explore sustainable innovation performance as outcomes of back-shoring strategies. Design/methodology/Approach Related literature With the rise of globalization, companies have started to include manufacturing location decisions among their most delicate strategic choices since they impact both short- and long-term performance (Porter, 1986). Notably, companies that had previously moved their activities offshore started moving them back, considering, among others, tax benefits and product quality reasons (Fratocchi et al., 2016). This change of directions gave birth to a new trend identified in the literature as back-shoring (alternatively as back-reshoring or reshoring) (Fratocchi et al., 2014). The pandemic has laid bare the fragility of the global supply chain, and since companies will no longer consider the cost savings of offshoring to be worth the risk, they will look at back-reshoring their productions (Javorcik, 2020). As such, studying this phenomenon is relevant nowadays as never before. Previous literature has widely explored the motivations behind back-shoring decisions (Barbieri et al., 2018; Stentoft et al., 2016; Wiesmann et al., 2017); instead, still little is known about the outcomes of such a strategy. Brandon-Jones et al. (2017) have analysed the impact of backshoring announcements, finding positive abnormal stock returns in U.S. firms. Instead, Johansson and Olhager (2018) focused on the linkages between drivers of relocation strategies and operational performance, finding that no single relocation driver significantly affect all the performance measures, with each particular relocation driver leading to specific performance effects. Developing these results further, Johansson et al. (2019) found that when back-shoring is motivated by cost or market factors, cost benefits can be expected; while development, quality, and market proximity drivers are associated with quality, delivery, and flexibility benefits. More recently, Moradlou et al. (2021) listed the outcomes reported by eight UK-based companies, finding how back-shoring decisions enable companies to obtain outcomes related to sustainability and innovation. Methodology We have built an ad-hoc dataset relying on different data sources to reach the study objectives. Notably, we leveraged Reshoring Initiative (a no-profit organization helping companies in the U.S. to bring manufacturing back) case dataset to collect secondary data about back-shoring cases in the U.S. In addition, we have gathered data at the company level from the Compustat database and the SDC database, including financial data and information about companies’ open innovation activities (e.g., R&D expenses, total assets, prior alliances and M&A). Also, patent data were collected from the USPTO database. Econometric analyses to test hypotheses investigating the relationship between back-shoring and innovation have been conducted. Expected Findings By investigating the effect of back-shoring on innovation performance, we expect the following main results: • Demonstrating that, by reducing the distance between research and development and production, back-shoring impact the achievement of innovation; • Disentangling the effects of back-shoring on innovation, including the sustainability-driven ones. Relevance/Contribution This paper have implications for the back-shoring literature by further advancing the knowledge on the outcomes generated by this strategy, especially in terms of innovation and sustainability. In addition, the practical implications are connected with the demonstration that back-shoring decisions can also have less tangible effects, such as those on innovation and sustainability, thus stimulating companies to include the innovation propensity in their decision-making, while considering back-shoring. Moreover, the development of innovations is often achieved collaboratively among different actors within the supply chain. Hence, the practical implications extend from the single companies to entire supply chains that may decide to make collaborative investments in innovation to facilitate the recreation of local supply chains. The results may also generate relevant insights for policymakers by identifying the contextual characteristics connected to innovation that make specific regions more attractive.