Is Reshoring Better Than Offshoring? The Effect of Offshore Supply Dependence

In this paper we investigate the effect of offshore supply dependence (OSD) on offshoring-reshoring profit comparisons. We find that OSD hampers a reshoring manufacturer's responsiveness to demand information updates and may significantly affect offshoring-reshoring comparisons, such that reshoring may yield lower profits than offshoring in many cases, including when offshoring has no baseline-cost advantage. We then show that OSD also affects how salient costs such as customs duties and shipping costs influence offshoring-reshoring profit comparisons. We further identify common-component designs as a mitigating measure to make reshoring more appealing under OSD, and numerically confirm the robustness of our results.