Emerging market presence, inventory, and product recall linkages

This study investigates simultaneous linkages between outsourcing, in‐house offshoring, sales to emerging markets, inventory and product recalls. The study finds a positive and significant association between outsourcing to emerging markets and recalls and that sales penetration into emerging markets reduces recalls; however, it finds no direct relationship between in‐house offshoring and recalls. Interestingly, in‐house offshoring to emerging markets appears to mitigate the positive relationship between outsourcing to these markets and recalls; this suggests that transactional complexities of outsourcing to emerging markets are mitigated by a physical presence in the market. This important finding suggests that by keeping some operations in‐house, firms may reduce the negative effect of outsourcing on product quality and safety while reaping low‐cost benefits of sourcing from these emerging markets. Additionally, the results indicate that institutional immaturities within recipient countries (associated with outsourcing) are primary contributors to inefficiencies affecting quality performance. On the inventory side, sourcing from emerging markets negatively affects inventory performance. Although inventory performance typically does not appear to be related to recalls, finished goods inventory is positively associated with quality failures.