Outsourcing as a Risk Management Mechanism for Domestic Manufacturing Capacity Investment
By Nikolay Osadchiy, Goizueta Business School, Emory University, USA, nikolay.osadchiy@emory.edu | Shi Qiu, Gies College of Business, University of Illinois Urbana-Champaign, USA, qiushi2@illinois.edu | Sridhar Seshadri, Gies College of Business, University of Illinois Urbana-Champaign, USA, sridhar@illinois.edu
Abstract
We propose two perspectives on the shift from U.S. domestic manufacturing to Asia in 1990–2011: production cost arbitrage and the management of supply-demand mismatch. In our model, a firm facing demand uncertainty decides between investing in domestic or overseas production capacity. The model predicts greater investment overseas when the cost arbitrage is high, switching cost is low, demand volatility is high, and the systematic risk in demand is above a certain threshold. Empirically, we observe strong support for the cost arbitrage motive in 1990–2000 and the risk management motive in 2001–2011, i.e., after China’s entry into the WTO. We estimate that investing into risk mitigation could have saved more than 400,000 U.S. manufacturing jobs.
Supply Chain Finance and Risk Management in a Digital Era
This special issue, which surveys the most recent research in integrated risk management for supply chains, is motivated by the success of the 8th “Supply Chain Finance and Risk Management Workshop,” which was held at the Olin Business School of Washington University in St. Louis on May 30 and May 31, 2023. The Editors wanted timelier access to the latest research on supply chain finance and supply chain risk management. It is well-known, that due to review process lead times, articles published in traditional journals can take 2 to 3 years. The idea of producing an edited volume, which would include the latest articles on the topics above appealed not only to the workshop participants but also to other active members of the iFORM (Interface of Finance, Operations, and Risk Management) research community. Foundations and Trends in Technology, Information and Operations Management provides an ideal outlet for such a volume.
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Foundations and Trends® in Technology, Information and Operations Management, Volume 18, Issue 1 Special Issue: Supply Chain Finance and Risk Management in a Digital Era
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