Is There a Curse of Relocation? Analysing the Causal Link Between Offshoring and the Innovation Performance of (Small) Firms

Abstract

We analyse the empirical link between offshoring activities and different dimensions of innovation performance at the firm-level. In order to identify causal effects running from offshoring to innovation, we use a quasi-experimental comparison group approach by means of (conditional) difference-in-difference estimations applied to German establishment-level data for firms that conducted offshoring activities in the period 2007-13. We find that the international relocation of business functions has a negative impact on the firms' propensity to be innovative in terms of product and process innovations as well as product improvements. While for larger firms the reduction in process innovations is most striking, potentially due to a lack of resources, stagnation in expertise and a reduction in intra-organizational learning-by-doing associated with the relocation of some business activities, for small and medium-sized enterprises we particularly observe a reduction in product innovations after the offshoring activity has taken place. When interpreting this 'pessimistic' picture on the link between offshoring and the innovation performance of firms, the reader should note that our findings for German establishments have to be assessed through the lens of a global economy in economic recession after 2008, which may have intensified the negative impact of offshoring on the firms' innovation performance.

Relocation, innovation, and the difference that firm size makes: Insights for global sourcing strategies of SMEs

“…There is a rapidly growing empirical literature that analyzes the effects of (international) relocation activities on firm performance in general and firm innovativeness in particular (see Mitze and Kreutzer, 2017 , for an overview). One strand of the literature thereby distinguishes between different types of offshoring, i.e., offshore outsourcing versus captive offshoring (Steinberg et al, 2017 , Mazzola et al, 2019 ).…”

“…Our empirical analysis is built on two complementary data sets. As main data source, we used rich micro data for German firms obtained from the IAB Establishment Panel (see Ellgut et al, 2014 , for data documentation, as well as Mitze and Kreutzer, 2017 , for an earlier application). Our sample utilizes information for roughly 17,500 firms during the period 1999–2014; we excluded all firms facing a full or partial shutdown during this period as this may confound the effect of relocation activities.…”

“…Despite this growing evidence on the relationship between relocation and firm performance, only very few studies focus on the role of firm size therein: Görg and Hanley (2004) find for the Irish electronics sector during the period 1990-1995 that only those firms gain from offshoring in terms of profitability who are considerably larger than the average sample firm. Mitze and Kreutzer (2017) report evidence that small firms experience a significantly larger reduction in the propensity to introduce a process innovation than large firms. However, no evidence is available yet that compares the innovation effects across different relocation types for firms of different size.…”

La estrategia de retorno de la industria española: El caso del sector calzado en Alicante, su importancia y determinantes

“…Este desplazamiento ha estado motivado, en muchos casos, por las ventajas de costes que estas economías presentaban. Ello generó una preocupación importante por la pérdida de puestos de trabajo en los países de origen dada la dificultad de competir con los menores costes laborales de las economías a las que se dirigían, aun teniendo en cuenta los diferentes niveles de productividad (Wright, 2014, Gagliardi, Iammarino y Rodríguez-Pose, 2015 así como por su impacto sobre otras actividades de la empresa como es el caso de la innovación (Mitza y Kreuzer, 2015) o el propio crecimiento económico (Alan, 2004). Por su parte, para las economías de acogida este proceso supone entradas adicionales de capital y tecnología que les permite avanzar en su senda de desarrollo y mejorar sus expectativas de crecimiento (Sanchez-Robles, 2006, o Hansen, Schaumburg-Müller y Pottenger, 2008.…”