Anthony Goerzen
Professor & Sobey Professor of International Business
- Adapted from: “Re-Evaluating the Offshoring Decision: A Behavioural Approach to the Role of Performance Discrepancy”
- Based on Research by: Stefano Elia, Anthony Goerzen, Lucia Piscitello, Alfredo Valentino
- Journal: Journal of Management Studies Special Issue (2024)
Key Takeaways
- Performance discrepancies—whether a company is underperforming or exceeding its goals—directly shape how firms search for offshoring solutions. Managers can apply this research by tailoring their strategic responses: underperformance should prompt consideration of larger changes like relocating operations, while overperformance suggests focusing on incremental improvements or expansions in the current location.
- This study shows that rational analysis and cognitive biases, such as the perceived strategic value of a location, influence offshoring decisions. Practically, this means companies should be aware of, and actively manage, these biases to ensure that decisions about expanding, relocating, or maintaining offshore operations derive from objective performance data rather than subjective perceptions.
- The research findings emphasize the importance of the "offline search" phase, where firms compare multiple alternatives before acting rather than only analyzing post-change outcomes. Businesses can use this insight by systematically evaluating a range of local and distant options in response to performance feedback, improving the quality and effectiveness of their offshoring strategies.
This article investigates how companies reconsider their offshoring strategies in response to differences between actual performance and the firm's goals. Offshoring—moving business activities abroad—has been a common way for firms to lower costs or access new markets, but the expected benefits often do not materialize as planned.
Anthony Goerzen and his co-authors argue that when firms notice a gap between their performance and aspirations, whether positive or negative, this triggers a search for alternative strategies. Negative discrepancies (underperformance) lead to a broad search for distant solutions, such as relocating activities to a new country, while positive discrepancies (outperformance) encourage firms to deepen their commitment to their current location. The study also highlights the influence of cognitive biases, particularly when a location is seen as strategically important, which can affect how companies respond to performance feedback.
The research methodology centers on the Behavioral Theory of the Firm (BTOF) and focuses on the "offline" search process (when firms consider multiple alternatives before making a change) rather than reacting immediately. The authors analyzed 441 offshoring initiatives from 1964 to 2009, examining how parent companies responded to performance assessments. Using econometric analysis, they tested hypotheses about how different types and sizes of performance discrepancies influence the likelihood and direction of strategic search. The study also considered how cognitive biases, such as the perceived strategic value of a host country, can moderate these effects, making firms more or less likely to consider distant or local alternatives.
In practical terms, the findings suggest that companies should be aware of how underperformance and overperformance can prompt strategic reviews of offshoring decisions. Managers should recognize that their own biases about certain locations may affect the search for solutions, potentially limiting the range of options considered. By understanding these behavioural dynamics, firms can make more informed and flexible decisions about locating their activities and balancing the risks and opportunities of offshoring and reshoring.
This research offers valuable insights for companies seeking to optimize their global strategies in a rapidly changing business environment, emphasizing the importance of structured, reflective decision-making processes rather than relying solely on reactive or habitual responses.