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2793. Offshoring and reshoring under social and economic uncertainty

Invited abstract in session TC-33: Optimal control and resilience, stream Optimal Control Theory and Applications.

Tuesday, 12:30-14:00
Room: 42 (building: 303A)

Authors (first author is the speaker)

1. Maddalena Muttoni
Department of Mathematics "Tullio Levi-Civita", University of Padova
2. Alessandra Buratto
Department of Mathematics, University of Padova

Abstract

This study examines a firm adopting offshoring, the strategic relocation of business processes abroad. Motivated by cost benefits like cheaper labor and regulatory advantages, offshoring may enhance competitiveness and market access.
However, in today's dynamic market, the strategic advantage of offshoring can quickly transform into a liability for firms. As consumers grow more discerning and socially conscious, factors like the MADE IN effect (the preference/aversion toward products based on their country of origin) alongside rising ethical concerns about labor exploitation and environmental sustainability, may challenge the efficacy of offshoring. Moreover, unforeseen circumstances such as war, pandemics, or social unrest can disrupt operations abroad, prompting companies to reassess their production strategy.
Given these factors, we consider an external disruption of social, economic, or geopolitical origin, occurring unexpectedly and leading to a regime shift within the firm's operational environment.
The objective of this research is to investigate how the firm should adjust its offshoring strategy in anticipation of and in response to such regime shifts. The problem is structured and addressed as a 2-stage optimal control problem with a stochastic switching time. The study aims to provide insights into proactive measures firms can employ to adapt their offshore operations effectively, mitigating risks and maintaining competitiveness in a dynamic global environment.

Keywords

Status: accepted

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