East, west, would home really be best? On dissatisfaction with offshore-outsourcing and firms' inclination to backsource

Abstract

With so many firms seemingly disenchanted with their experiences of offshore outsourcing one may well wonder why relatively few of these firms choose to ‘backsource’ – i.e., bring their offshored operations back in-house. Of all sourcing decisions that firms take, backsourcing is perhaps the least understood and least researched. In this article we draw on the behavioral theory of the firm (BTF) to propose a new model in which differences in firms' inclination to backsource are ascribed to the level of dissatisfaction at not having achieved offshoring aspirations. Building on BTF concepts of bounded rationality, problemistic search and satisficing decisions, the model suggests that how this dissatisfaction with offshoring affects a firm's inclination to backsource is dependent on managerial expectations regarding the technical challenges of reintegrating activities and the possible financial losses and decline in quality following backsourcing, as well as on internal political support and financial slack for backsourcing. SEM analysis of data from U.S. and U.K. firms shows support for the model. The study highlights the importance of recognizing the role of managerial perceptions and biases and subgroup political relations in shaping firms' backsourcing behaviors. We also discuss the study's contributions to research and practice.