A recent study on European manufacturing firms finds that companies that have offshored production activities subsequently show a higher innovation performance.
In the last few decades, European companies have moved considerable parts of their manufacturing activities abroad. The study showed that these offshoring companies reveal a higher innovation performance. They spend significantly more on R&D, allocate more resources to product design, and invest more in process innovation and advanced production technologies. These results indicate that offshoring is not a reaction to the loss of international competitiveness. It is rather an integral part of an expansion strategy adopted by innovative companies.
The analysis cannot confirm fears that offshoring of production contributes to a ‘hollowing out’ of national competitiveness. The activities that add to the technological capabilities of firms and to their ability to create competitive advantage – such as R&D, design or process innovation – are positively associated with a firm’s decision to relocate production activities across the border. Thus, protective policy measures to prevent production offshoring do not only contradict the very notion of free trade but could also harm the technological capabilities and value-adding competences of firms.
Source: Drs. Bernd Ebersberger (Management Centre Innsbruck) and Bernhard Dachs (Austrian Institute of Technology), 2013.