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Offshore versus Onshore Sourcing: Quick Response, Random Yield, and Competition
Author(s) -
Jung Seung Hwan
Publication year - 2020
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.13135
Subject(s) - competition (biology) , industrial organization , order (exchange) , business , yield (engineering) , strategic sourcing , pooling , dual (grammatical number) , submarine pipeline , microeconomics , economics , marketing , strategic planning , computer science , finance , art , ecology , materials science , literature , strategic financial management , artificial intelligence , metallurgy , biology , geotechnical engineering , engineering
Motivated by the recent reshoring initiatives, we study firms’ global sourcing strategies from two different supply sources, offshore and onshore supply bases, under supply and demand uncertainty. Interestingly, even though onshore sourcing has a significant benefit from market responsiveness, offshore sourcing having no cost advantage also provides benefits in the presence of yield uncertainty and market competition. If competing firms commit single sourcing, one firm may choose inferior offshore sourcing to dampen competition. When a dual‐sourcing option is available, firms always utilize dual sourcing, offshore sourcing as well as onshore sourcing, for risk pooling purpose. Our result shows that risk pooling is an essential driver in supplier selection in that the need for dual sourcing cannot be eliminated by other influential factors (e.g., responsiveness and competition effect). However, we find that firms may suffer from a dual‐sourcing option under competition. This contrasts with the conventional wisdom that dual sourcing benefits firms in the presence of supply uncertainty. When it comes to order allocation, market responsiveness is not necessarily an order winner since it does not lead to a larger order to an onshore supplier if demand is guaranteed above a certain level. Under competition, firms’ order allocation is mainly determined by supply yield correlations.