The Cost Advantage of Reshoring - Ideas for Leaders
Idea #709

The Cost Advantage of Reshoring

This is one of our free-to-access content pieces. To gain access to all Ideas for Leaders content please Log In Here or if you are not already a Subscriber then Subscribe Here.
Main Image
Main Image


Reshoring is the decision to return business activities to a firm’s domestic market. Analysing the impact of reshoring announcements on stock prices indicates that the benefits of reshoring outweigh the costs.


Despite the well-known and well-documented financial benefits of outsourcing and offshoring business activities, a growing number of U.S. companies are changing direction: they are moving their business activities, including manufacturing and service operations, from foreign markets back to the U.S. — a process known as ‘reshoring’.

Reshoring entails both benefits and costs. On the benefit side, reshoring allows companies to:

  • Manage their production capacity and inventory more efficiently. For example, companies have less need to keep safety stock at offshore distribution centres. They can also postpone production more easily until they have a better knowledge of demand, thus reducing the potential for overstocked items.
  • Lower the risk of supply chain disruptions. Quality failures or intellectual property theft are more common in offshore locations.
  • Reduce costs. Packaging, travel and communications costs are lower with domestic business activities.
  • Increase customer responsiveness. Reshoring brings production closer to the end user. Companies can respond faster to changing customer demands.
  • Enable innovation. Cross-functional collaboration between design and manufacturing, now physically and even culturally closer to each other, can spur innovation.

On the cost side, reshoring requires companies to:

  • Incur significant switching and set up costs. New factories or inventory facilities may need to be built.
  • Pay more for labour. Labour costs are typically higher in many domestic markets, including the U.S.
  • Pay higher taxes and deal with currency risks. Despite tax credits and other subsidies, the tax and currency implications are likely to be unfavourable.

Do the benefits outweigh the costs? One way to find out is to analyse the stock market reactions to reshoring announcements. A study featured in the Journal of Operations Management describes this type of analysis. The research team from the University of Bath and the University of Manchester calculated the abnormal stock returns (actual stock returns minus the expected returns had there been no event) immediately following reshoring announcements for 37 major reshoring events between 2006 and 2015.

The resulting figures are compelling. On average, reshoring announcements led to an average positive stock price reaction of 0.45%, representing an average positive valuation increase of more than $320 million. From the perspective of investors, a reshoring announcement is good news.


Based on this research, the time may have come to rethink assumptions about the benefits of offshoring activities. The attraction of lower labour costs can hide some of the less evident disadvantages of offshoring as well as the advantages of domestic business activities. Companies making decisions on either moving business activities to offshore locations or reshoring business activities currently in foreign locations must take the time to calculate all of the nuances of potential costs and benefits. For example, increased labour costs can be offset by increased productivity. Or savings from shortened supply chains can offset increased costs of manufacturing at home.

The positive response of investors to reshoring announcements indicates that so-called ‘high-cost’ locations may actually be lower cost than anticipated.



The Impact of Reshoring Decisions on Shareholder Wealth. Emma Brandon-Jones, Marie Dutordoir, Joao Quariguasi Frota Neto & Brian Squire. Journal of Operations Management (January 2017). 

Ideas for Leaders is a free-to-access site. If you enjoy our content and find it valuable, please consider subscribing to our Developing Leaders Quarterly publication, this presents academic, business and consultant perspectives on leadership issues in a beautifully produced, small volume delivered to your desk four times a year.


Idea conceived

January 11, 2017

Idea posted

Jun 2018
challenge block
Can't find the Idea you are after?
Then 'Challenge Us' to source it.


For the less than the price of a coffee a week you can read over 650 summaries of research that cost universities over $1 billion to produce.

Use our Ideas to:

  • Catalyse conversations with mentors, mentees, peers and colleagues.
  • Keep program participants engaged with leadership thinking when they return to their workplace.
  • Create a common language amongst your colleagues on leadership and management practice
  • Keep up-to-date with the latest thought-leadership from the world’s leading business schools.
  • Drill-down on the original research or even contact the researchers directly

Speak to us on how else you can leverage this content to benefit your organization.