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Does reshoring affect the resilience and sustainability of supply chain networks? The cases of Apple and Jaguar Land Rover

Journal: British Journal of Management

Date: 2023

Author: Nishat Alam Choudhary, M. Ramkumar, Tobias Schoenherr, Nripendra P. Rana, Yogesh K. Dwivedi

Abstract:
Extending the notion that reshoring can have a significant impact on a firm's supply network owing to the associated location decisions, we explore how reshoring influences the resilience and sustainability of a focal firm's supply network. While reshoring is triggered by aspects related to both the home (domestic) and the host (foreign) country, frequently more favourable aspects in the home country lead to the reshoring decision. To investigate these dynamics, we construct two large-scale networks consisting of 2066 and 1283 firms, respectively, capturing the supply networks of Apple and Jaguar Land Rover. Both networks have been experiencing the reshoring of previously foreign suppliers to domestic locations. Our investigation captures the network dynamics created by this relocation of tier 1 suppliers for the overall supply chain network, that is, also for higher-tier/sub-tier suppliers. The results reveal, contrary to our expectations, that indirect (sub-tier) foreign suppliers positively influence the network's resilience, with this impact, however, being negatively moderated by their degree centrality, that is, the number of ties a node possesses. In addition, existing indirect (sub-tier) domestic suppliers do not have a significant influence on the resilience of the network. No evidence was found for the impact of reshoring on sustainability. Overall, our study contributes to the reshoring literature by delineating its influence on both the resilience and the sustainability of a focal firm's supply chain network.

Link: Google Scholar

Background and Context

Understanding Reshoring

Reshoring is a phenomenon triggered by trade wars, rising labor costs, sustainability concerns, and COVID-19 pandemic disruptions that moves production back to domestic locations.

Research Focus

This study explores how reshoring influences supply chain network resilience and sustainability by examining the large-scale networks of Apple and Jaguar Land Rover.

Methodology

Researchers constructed two networks consisting of 2066 firms (Apple) and 1283 firms (JLR), categorizing suppliers as direct/indirect and domestic/foreign to understand reshoring impacts.

Supply Chain Network Structure Dramatically Changes with Reshoring

Focal Firm Direct Domestic Suppliers Direct Foreign Suppliers Indirect Domestic Suppliers Indirect Foreign Suppliers Reshoring Reshoring involves replacing foreign suppliers with domestic suppliers, affecting the entire network structure including indirect suppliers.
  • Reshoring involves replacing direct foreign suppliers (DFS) with direct domestic suppliers (DDS), affecting the entire network structure.
  • Network changes extend beyond direct suppliers to include indirect suppliers in different tiers of the supply chain.
  • The decision to reshore brings with it an entirely new set of supply networks from the new domestic suppliers.

Network Characteristics Change Significantly After Reshoring

  • Reshoring reduces the total number of firms (nodes) and connections (edges) in both Apple and JLR networks.
  • The proportion of domestic firms increases notably after reshoring, showing a shift towards home country operations.
  • These structural changes suggest increased visibility into supply networks but potentially fewer redundancies for resilience.

Indirect Foreign Suppliers Surprisingly Enhance Network Resilience

Effect on Network Resilience Effect on Resilience Indirect Domestic Suppliers No significant effect Indirect Foreign Suppliers Strong positive effect
  • Contrary to expectations, indirect foreign suppliers positively impact supply network resilience after reshoring.
  • Indirect domestic suppliers show no significant effect on network resilience, challenging assumptions about domestic sourcing benefits.
  • This suggests that complete domestic supply networks may not necessarily be optimal for resilience.

Degree Centrality Negatively Moderates the Resilience Benefits from Foreign Suppliers

Betweenness Centrality (BC) of Indirect Foreign Suppliers Network Resilience High DC Medium DC Low DC
  • While indirect foreign suppliers enhance resilience, this effect is weakened when they have high degree centrality.
  • Highly connected foreign suppliers with many relationships create greater dependencies and vulnerabilities in the network.
  • The ideal scenario combines the benefits of foreign expertise with limited network interdependencies.

Reshoring Shows No Significant Impact on Supply Chain Sustainability Performance

  • Mean Environmental, Social, and Governance (ESG) scores show virtually no change between existing and reshored networks.
  • The expectation that reshoring would enhance sustainability was not supported by empirical evidence.
  • Sustainable supply chains require deliberate sustainability initiatives regardless of supplier geographic location.

Contribution and Implications

  • The study reveals that reshoring decisions should consider the entire supply network structure, not just Tier 1 suppliers.
  • Indirect foreign suppliers unexpectedly contribute positively to network resilience, challenging conventional reshoring assumptions.
  • Companies should carefully manage highly connected suppliers since they can reduce resilience benefits gained through reshoring.
  • Sustainability objectives should be pursued independently from reshoring decisions as geography alone doesn't guarantee improvements.
  • Future reshoring strategies should adopt a systems perspective focused on network-wide impacts rather than purely geographical considerations.

Data Sources

  • Network characteristics visualization is based on Table 1, showing topological network characteristics for both case firms.
  • The indirect foreign suppliers' positive impact visualization is based on regression results from Table 2, Models 3-4.
  • The degree centrality moderation effect visualization is based on the significant interaction term in Table 2, Model 4.
  • The sustainability performance comparison is based on the ESG scores data from Table 3, Panel A.
  • The supply chain network visualization is a conceptual representation based on the network structure descriptions in the paper.