Making decisions on offshore outsourcing and backshoring: A case study in the bicycle industry

Small and medium-sized enterprises (SMEs) are expected to generate new innovations, as well as future growth and employment for the European economy. In the last two decades a large number of European manufacturing companies have offshored their production operations to low-cost countries outside of the Eurozone. However, also bringing back home the once offshore outsourced manufacturing, i.e. backshoring, has become a notable phenomenon even if it has received less attention in research until very recently. This paper reports research on consecutive offshoring and backshoring decisions of a Northern European bicycle manufacturing company. We identified an over 30 percent cost advantage from offshore outsourcing that turned, over a two year period, into an advantage for the firm׳s own manufacturing in the home country. The main reasons for the rediscovered advantage of in-house manufacturing were (1) the increasing accuracy of cost allocation procedures, (2) changes in external factors, such as exchange rate variations and supplier costs, (3) growing sales volumes and the simultaneous requirement for shorter lead-times resulting from the redefinition of the product, and (4) the network-level learning to combine factory and network-level operations. The contribution of this paper is the insight that it provides into how companies can overvalue the cost benefits of offshore outsourcing, as well as highlighting factors to be considered and the sensitivity analysis to be carried out in evaluating such decisions.