Reshoring, sustainability and innovation: synergies or trade-offs?

Author: Albachiara Boffelli

You might remember that, in my very first article on this blog, I shared that my major research passions deal with reshoring, sustainability and technology. What I did not tell you is that, since your research reflects what you are passionate about, sooner or later you will strive for linking all your passions together. Your background and your thoughts somehow shape your research path. As a consequence, for me linking reshoring, sustainability and innovation came out quite naturally.

The research idea started from early discussions with the other scholars involved in this study, having created good connections at conferences made the difference here.  We realized that despite the theme of reshoring has attracted increasing attention from scholars, the link between this phenomenon and sustainability and sustainable development is still heavily overlooked (Fratocchi and Di Stefano, 2019).

Photo by Pixabay on Pexels.com

It is well known that production activities affect all the three pillars of sustainability: economic, environmental and social. There is no need to say that decisions regarding the place of production can have enormous impacts on the sustainability of a company. Of course, sustainability can be seen at the same time as one of the reshoring drivers (or motivations), given the increasing attention from enterprises and – above all – consumers to sustainable development, as well as a barrier, for example in the case where more stringent environmental regulations prevent companies from relocating production activities. Finally, sustainability represents an objective that must be reached urgently to guarantee future generations to meet their needs. At the same time, innovation has been recognized – both by scholars and by policymakers – as a key factor for the full implementation of sustainability-based policies and strategies.

To summarize, two relationships were hypothesized, between reshoring and sustainability on the one hand, and between sustainability and innovation on the other. For this study, both primary (through interviews) and secondary (from social reports, corporate websites, press releases, news) data were collected from 8 companies that differed in terms of industry and size but made reshoring decisions in the past.

The research examined the reasons behind the decision to bring the production back to the home country, to verify if sustainability represented one of the drivers of this choice. From the analysis, it emerged that in 7 out of 8 cases the main reason was the made-in effect, or rather the greater value perceived by customers for productions made in a specific country. In 5 cases, the availability of product and/or process know-how in the home country. Instead, the increased flexibility ofproduction and the proximity to suppliers and/or consumers are the third and fourth reasons (4 cases). Regarding the dimensions of sustainability, they have never been the main motivation. More specifically, concerning the social dimension, the most cited driver was the positive impact on employment levels in the country of origin, while concerning the environmental one, the reduction of COemissions (carbon footprint) and the implementation of environmental standards were the most cited drivers. 

The role of innovation was also explored in this research. In particular, whether the product and/or process innovations have been introduced as support or were rather a consequence of the reshoring implementation was assessed. Interestingly, in all 8 cases analyzed, innovation is found to be essential for the implementation of reshoring choices. Most of the companies (6 out of 8) have built new and innovative production plants while two others have regenerated the pre-existing ones. At the same time, two companies have developed a local supply chain, while one has designed and launched a new production line.

In the end, the links between the three components at stake, namely reshoring, innovation and sustainability, resulting from the analysis of the exploratory cases, is represented in the following figure: reshoring, motivated only partially by sustainability, but mainly by other drivers, requires the implementation of various kinds of innovations that ultimately allow obtaining advantages from the sustainability point of view.

Results scheme (Source: Authors’ original development)

By comparing the early results with previous studies, as every good researcher should do, we acknowledged that the reasons underlying the individual reshoring choices identified during this research were consistent with those already highlighted in the scientific literature and in the empirical evidence of the European Reshoring Monitor, which monitored the relocation decisions of European companies between 2014 and 2019. Besides, the evidence gathered confirm what was claimed by Fratocchi and Di Stefano (2019), according to whom the reasons related to social and environmental sustainability do not represent, per se, the most significant driver of the reshoring choice. However, they are present as “contributing causes”, which confirms the growing attention that the management of manufacturing companies is paying to these issues, especially in sectors such as fashion and especially following the Covid-19 pandemic. In this regard, we noted that most of the considered companies adhere to Agenda 2030 to sustainable development and implement initiatives of Corporate Social Responsibility, demonstrating their commitment to achieving the goals of sustainable development.

As far as innovation is concerned, the result obtained confirms the close link between innovation and sustainability theorized in the literature but also demonstrates a significant interdependence with relocation choices. Indeed, as mentioned previously, the introduction of innovations is often necessary to achieve sustainable development. The companies that have decided to relocate their production have adopted sustainable solutions: purchasing the latest generation machinery and implementing technologies that use recycled materials, reducing the consumption of energy and raw materials, reducing emissions produced and purchasing from more knowledgeable suppliers who follow environmental standards. 

The most innovative aspect of this research concerns the links between the three variables involved. Indeed, the analysis shows the interdependencies between reshoring, sustainability and innovations, as well as the benefits resulting from their synergies. Given the climate emergency, companies are forced to reconsider production methods. Some are considering to bring back the supply chain in their country of origin to reduce the impact of transports, which in many cases have devastating impacts from an environmental point of view. 

The research presented in this article has shown how the link between reshoring and sustainability is affected by the (positive) intermediation of innovation, therefore it is possible to derive an indication for policymakers, also in consideration of the new Green New Deal promoted by the European Commission: it is not essential to incentivize companies to become more sustainable directly; the alternative offered by the research presented here consists in encouraging the development of innovations that allow companies that are considering reshoring to implement it, while also obtaining benefits related to sustainability.

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