Offshore Sourcing and Reshoring: The Impact of Governance on Cost and Incentives

Abstract

This paper reports a pilot study of three New Zealand based high-tech SMEs sourcing from China. While respondents were motivated by cost savings and quality improvements, they faced challenges of intellectual property protection and variation between anticipated and landed cost savings. The choice of governance mode was critical to the achievement of competitive benefits. Governance structures reflected institutional weaknesses in China and firms reported a high rate of mode switching. Mode switching could be an alternative to reshoring where it enables outsourcers to respond to changing cost and regulatory conditions or to correct locally suboptimal arrangement.