Adoption of digital technologies and backshoring decisions: is there a link?

Abstract

AbstractThe present paper assesses whether the adoption of Industry 4.0 technologies can be related to backshoring. It does so by -firstly- investigating the implementation of such technologies by industrial firms with foreign production plants, the experiences and intentions of these firms regarding the location of production activities, and -secondly- by analyzing backshoring cases among them.It finds that backshoring is a rare phenomenon, and it is questionable whether there is a correlation, left alone causality, between the adoption of digital technologies in home-based manufacturing sites and backshoring hitherto. And while the future may hold more backshoring movements in store, they may not be primarily due to the adoption of Industry 4.0 technologies at home-based plants. Instead, other (foreign) location-specific factors seem to have greater weight in the decision-making processes around backshoring operations. I.e., deteriorating sales forecasts in offshore places where firms have production activities, increases in institutional uncertainty in such places, rationalization of global production apparatuses, and/or a lack of possibilities to deploy foreign manufacturing activities and output for third markets. Also against the backdrop of events like the outbreak of Covid19 and the uncertainty-raising effect it has on international business, the trade-off between producing off-shore or bringing manufacturing activities back home is not likely to depend on technology adoption levels at home and abroad either.