Supply backshoring as a strategy to reduce transaction costs in an era of global value chain reconfiguration

Abstract

In recent years, the global economic landscape has become increasingly turbulent, exposing Global Value Chains (GVCs) to unexpected disruptions and leading companies to reassess their international strategies. To enhance their resilience and reduce dependencies on unstable markets, firms are adopting, among others, relocation strategies, including supply backshoring: the substitution of foreign suppliers with those in the home country. In this paper, we investigate the supply backshoring phenomenon through the lens of Transaction Cost Economics (TCE). Our empirical analysis, based on a dataset of Italian manufacturing companies integrating primary data from a survey conducted from June 2021 to February 2022 and archival data, supports the hypothesis that firms with higher asset specificity—measured by R&D and advertising intensity, as well as Intellectual Property rights intensity—display a greater likelihood of adopting supply backshoring. We also find some contingent effect, i.e., the positive relationship between firm asset specificity and the probability of implementing a supply backshoring strategy is stronger for medium-sized firms and for supplier-dominated and specialized supplier industries, while we do not find significant differences between firms operating in high-tech and low-tech industries. Our findings contribute to the understanding of supply backshoring by empirically validating TCE's relevance in this context and highlighting the role of asset specificity in firms' strategic decisions. This study offers one of the first comprehensive characterizations of the supply backshoring phenomenon, providing valuable insights for both scholars and practitioners.