Offshoring in a globalized world: how firm mobility and globalization reinforce each other

Firm relocation is not a new phenomenon, but it has gained prominence as globalization intensified from the 1980s onward. Although international firm relocation can exist without globalization, the other way round is not possible. Nowadays, firms are increasingly mobile both within and across national borders, and decisions about where to settle can be easily reversed if a cheaper, better-connected venue emerges. All these processes increase uncertainty about future economic geography, as territorial development and policy design depend heavily on firms’ decisions about where to locate their operations.

That mobility was also favoured by the post-pandemic rethinking of supply chains, which were significantly affected by mandatory lockdowns in the weeks immediately after the Chinese authorities closed their borders and isolated China from the rest of the world, following the pandemic’s spread in the Wuhan market in March 2020. The combination of increasingly mobile firms and lockdowns elsewhere generated huge distortions in global value chains (GVCs), which had to quickly find innovative solutions to replace suppliers that had disappeared. Some months after Wuhan’s events, firms were (potentially) able to return to pre-COVID supply chains, but by then the world had changed, and offshoring and backshoring had become increasingly relevant as strategic relocations were recognized as important sources of competitiveness.

Now, competition conditions have shifted worldwide, and firms continuously evaluate alternative locations for their suppliers, products and processes. Consequently, uncertainty about the future evolution of territories has exploded, and the strategic design of future conditions for competitiveness has become increasingly complex. Meanwhile, globalization has evolved in opposite directions, as world conditions have changed, and now goes back and forth depending on government decisions on tariffs and trade barriers.

Firm relocation means moving business activities to new locations. Firms do this to cut costs, reposition strategically, adapt to technological changes or respond to new rules (Mitze & Kreutzer, 2023; Lee, 2022). Sometimes they stay domestic – shifting from North Carolina to Texas for lower taxes or better business climate (Olney & Pozzoli, 2021; Pan et al., 2020). Domestic moves feel safer as firms keep their local connections (Erhardt & Haenni, 2022). But international moves (i.e., offshoring) seek cheaper labour abroad, specialized skills or positions in global supply chains (Kim, 2022; Feng & Wu, 2022). Offshoring often precedes later configurations, such as reshoring or moving to a third country, as firms adjust to technological change, Industry 4.0 adoption and evolving policy environments (Barbieri et al., 2022). These decisions affect innovation and performance differently depending on the destination and firm size (Mitze & Kreutzer, 2023).

On the other hand, globalization refers to countries becoming economically interconnected through increased trade, cross-border production, and the free flow of money, workers and ideas. Trade deals reduce tariffs and open markets, forcing firms to compete globally thus reshuffling local jobs and regions (Helms, 2024; Ezcurra & Del Villar, 2021). Technology spreads fast too – the internet and ICT development boost productivity and allow even small countries to participate in global markets (Onuogu et al., 2024). This breaks production into pieces scattered worldwide based on where labour or skills are most competitive (Blázquez et al., 2023). Digital services intensify it, creating new online trade channels. Mobile capital ties everyone together but also spreads financial shocks globally (Akinyemi, 2025).

Globalization directly influences relocation. Open markets intensify competition – firms cut costs by relocating factories to lower-cost labour markets (Helms, 2024; Ezcurra & Del Villar, 2021). As globalization accelerates capital mobility and deepens cross-border economic integration, foreign investment flows and trade openness create incentives for firms to shift activities towards regions with more favourable labour costs, regulatory frameworks, or fiscal conditions – supporting both national relocation and offshoring (Onuogu et al., 2024). At the same time, technological diffusion and digitalization reduce coordination costs and enable the fragmentation of global value chains, making it more efficient to distribute production stages across multiple locations (Blázquez et al., 2023). Wage competition also increases, as shortages of high-skilled workers in wealthy countries drive firms to seek engineers in Bangalore or operators in Mexico (Jayadevan et al., 2025).

Firms’ mobility across geographical areas has existed throughout history, but this process depends heavily on the institutional context, as decisions are made within a regulatory framework that either facilitates or hinders it. In this regard, mobility within national borders has generally been easier than across them, since regulations tend to vary less within the same institutional framework. Therefore, firms have always moved when their growth was limited by a lack of space for future capacity expansions, typically from city centres to the outskirts, where they could even benefit from lower production costs, although access to knowledge creation and skilled labour was also reduced. International relocations (offshoring) are more recent, but they also have a long history, as firms moved abroad for many centuries, driven by the search for new markets and raw materials.

Initially, offshoring was mainly about manufacturing activities, but as global competition intensified, the strategy was extended to service activities, including those previously considered “immune” to this mobility, such as R&D-intensive ones (Metters & Verma, 2008). During the 1980s, offshoring was mainly driven by push factors such as higher wages, excessive bureaucracy and environmental regulations in origin countries, but in the 1990s, new pull factors emerged in destination countries, including access to growing markets, FDI-supportive policies and a more skilled workforce, among others (Joubioux & Vanpoucke, 2016).

Offshoring not only involves relocating jobs and economic activities to other countries, but also entails relevant structural transformations (e.g., segmentation of value chains) and strategic shifts at the firm level (including the outsourcing of previously internal functions). Advances in information and communication technologies have enabled value chains to expand globally and to then become GVCs. As a result, offshoring has evolved beyond low-skilled manufacturing tasks to encompass complex knowledge-intensive services, reshaping traditional national value chains while allowing new countries (i.e., less developed and emerging countries) to enter global production networks at lower stages. Consequently, developing economies now account for a substantial share of employment within GVCs.

After decades of important offshoring movements from developed countries to less-developed ones, some of the advantages of the latter in attracting (and keeping) economic activity have vanished, leading to the emergence of reshoring, consisting of initially offshored activities going back to the countries of origin (Piatanesi & Arauzo-Carod, 2019), both for manufacturing and service activities (Albertoni et al., 2017). Although offshoring has enabled many firms to enhance their productivity, recent evidence suggests that its benefits have often been overestimated. This optimism largely stemmed from firms focusing on the expected gains from relocation while underestimating or disregarding the full range of associated costs, including rising unit labour costs in destination countries.

In addition, offshored firms operating in less developed economies have encountered further constraints, such as limited flexibility in serving home-country markets and difficulties maintaining quality standards for products that require highly skilled labour. Moreover, while offshoring can contribute to higher domestic welfare, this outcome depends critically on effective intra-firm communication systems that allow knowledge generated abroad to be efficiently transferred back to the parent firm, which is not always the case.

To address these limitations, some firms have begun relocating their production facilities (Fratocchi et al., 2014). This process, known as reshoring, includes two main options: returning to their original geographic areas (backshoring) or moving close to them (nearshoring). These strategies do not suggest that globalization is becoming less important for these firms, but rather that they are managing their activities in global markets differently—aiming to locate closer to their main (historical) markets, while still serving their (new) growing ones.

Some of these reshoring movements are driven by firms’ strategies to maximise profits, but others are also prompted by Western governments that have made (re)manufacturing a key priority. Currently, governments, such as the US administration, are making substantial efforts to shift manufacturing from China and Mexico back to the US, aiming to counter previous offshoring strategies by American firms. However, these efforts are not new, as there is substantial evidence of similar policies in the past, such as those implemented by previous US administrations like Barack Obama’s between 2009 and 2017 (Obama, 2012), as well as by many European governments, including the UK, France, Italy, and the EU Commission, with its “Renaissance of Industry for a Sustainable Europe Strategy” included in the Europe 2020 Programme, which sought to increase the share of manufacturing in EU GDP, partly by bringing back activities that had previously been offshored.

Globalization and relocation clearly affect each other, but not in a simple way. Globalization reshapes the economic, technological and institutional context in which firms operate, prompting relocation as a strategic response. Meanwhile, relocation becomes more common and further reinforces globalization by extending production and knowledge networks across borders.

As global integration deepens, barriers to the movement of people, goods, services and information tend to diminish, leading to more frequent cross-border exchanges and greater economic interdependence (Helms, 2024; Ezcurra & Del Villar, 2021). In this more fluid environment, firms gain access to new labour markets and more specialized workers, relying on logistics and digital systems to coordinate activities across multiple locations (Bhattacharya, 2024; Onuogu et al., 2024).

Traditional explanations of relocation typically highlight a combination of push and pull factors. These include variations in labour costs, regulatory environments, tax incentives, infrastructure and access to finance (Jayadevan et al., 2025). In practice, a firm might decide to move part of its production to a country with lower wages but good transport connections, or transfer service activities to an area offering tax incentives and a large pool of university graduates.

Recent works highlight additional drivers such as the spread of digital technologies and the growing fragmentation of global value chains (GVCs), which make it easier to split production across several locations (Onuogu et al., 2024; Blázquez et al., 2023). Globalization amplifies each of these elements: it widens cost gaps between regions, speeds up technological change, and exposes firms to foreign competitors and standards that often trigger organizational change. To put it simply, globalization does more than just enable relocation, it creates strong economic and technological reasons for firms to move activities across borders. Over time, this sets up a pattern in which global integration encourages relocation, and relocation, in turn, feeds back into further integration.

The reverse side of this process is equally important. When firms relocate to new countries or regions, they help expand the very networks that support globalization. Their decisions boost cross-border flows of goods, services, capital and knowledge by linking local operations to broader production systems (Helms, 2024). For example, when a pharmaceutical firm opens a plant abroad, it typically connects local suppliers, research teams, and logistics providers to an international chain. By positioning different stages of production in locations where costs, skills, and institutions are more favourable, firms deepen and sophisticate GVCs and reinforce existing patterns of international specialization (Blázquez et al., 2023). Relocation also spreads technologies, management practices, and digital systems, especially across sectors such as pharmaceuticals, information technology, and advanced manufacturing (Onuogu et al., 2024). Additionally, worker mobility and everyday cultural exchanges associated with relocation gradually reshape local labour markets and social settings, adding new layers to global interconnectedness (Bhattacharya, 2024; Yeganeh, 2024) and, consequently, fueling globalization.

Seen together, these developments point to a clearer two-way relationship. In this regard, Piatanesi and Arauzo-Carod (2019) suggest that relocation (whether offshoring, nearshoring, or backshoring) reflects a broader reorganization of production in response to global competitive pressures and institutional rules. The evidence indicates a genuinely two-way relationship between globalization and relocation. Globalization changes the broader context in which firms operate and creates pressures and incentives that encourage them to move activities from one location to another. Simultaneously, when firms relocate, they strengthen globalization by building new cross-border networks, deepening economic links, and facilitating knowledge exchange between locations. These dynamics together help explain the repeated waves of integration and spatial reorganization seen in the world economy, as well as the location choices firms make in response.

The relocation of economic activities creates winners and losers, although the timing affects these impacts (Acemoglu et al., 2015). In this way, in the short term, some regions benefit by attracting new employment and production, generating positive externalities, while others lose employment and production, as firms move away. However, over the longer term, the effects may change, as areas losing low-skilled and routine jobs might gain motivation to invest in more skilled activities and human capital, thereby replacing low-skilled jobs with higher-skilled ones. Consequently, core regions initially impacted by offshoring strategies could offset these short-term challenges by increasing productivity and value added, while peripheral regions receiving these activities, although gaining from higher employment and production, might eventually decline, as their increasing focus on low-and medium-skilled activities restricts future growth potential. This explains why the spatial effects of relocations are ambiguous, due to i) differences between short- and long-term dynamics and ii) the structural vulnerability and long-term productivity traps faced by regions specialising in low-value-added activities. Overall, globalization primarily redistributes activities worldwide, promoting greater specialization at the country level, depending on initial factor endowments and competitive advantages.

Previous consequences justify policy interventions at the national and international levels, to take advantage of welfare improvements generated by globalization and consequent relocation processes, whilst controlling the negative externalities that are closely related. In this regard, the key is to avoid zero-sum competition among territories, where gains in some areas are offset by losses in others, leading to no net improvement in overall welfare. Unfortunately, this is not an easy task as policymakers focus on single areas without considering side effects in others, meaning that globalization – and relocation – related policies are not driven by these global considerations, but only according to their own welfare maximization. Consequently, from an optimal governance perspective, what would be required is harmonised policy strategies across different areas, avoiding policies designed solely for specific regions without considering their global effects (Capik & Dej, 2019).

Based on previous concerns, some policy recommendations emerge, though their implementation requires tailored approaches. In this sense, policies suggested include i) avoiding the “race to the bottom” in fiscal incentives, ii) promoting institutional quality and infrastructure, iii) encouraging sustainable and inclusive growth in receiving areas, iv) improving firm-territory matching mechanisms (e.g., clusters, smart specialization, etc.), and v) using data and monitoring to identify early signals of relocation, in order to mitigate risks. Obviously, these strategies require coordination mechanisms (both at national and international levels) that are not always feasible given competing interests.

Besides the previous efficiency criteria, other factors influence policies on relocation and globalization, especially after major global disruptions to international trade and free movement of production factors, such as the COVID-19 pandemic, Russia’s invasion of Ukraine, and geopolitical tensions in the Middle East. In this context, in an era of growing uncertainty, governments tend to identify strategic industries that should be kept domestically, even if national competitiveness in these areas falls below the international threshold. Ultimately, this strategy balances efficiency – focusing on activities where the country has a competitive advantage – and security – maintaining domestically those activities in which the country is not efficient but are vital for its survival. It also recognizes that while a globalized approach would benefit national firms through increased efficiency, risk management advises against relocating all potential activities, opting instead to exercise some economic sovereignty by retaining a portion domestically to mitigate strategic risks associated with dependence on global markets.

In this sense, many OECD countries are increasingly concerned that it is preferable to avoid excessive dependence on external suppliers, even if that entails short-term economic inefficiency. This strategy is especially relevant for key industries such as semiconductors, vaccines, and defence technologies, for which GVCs are increasingly moving toward national configurations rather than following the global trend of spatially fragmented GVCs.

This paper has shown that globalization and relocation operate as mutually reinforcing forces shaping contemporary production systems and territorial outcomes worldwide. Firm spatial mobility reflects both economic incentives and deeper structural transformations associated with global integration. These movements follow identifiable patterns but are far from mechanical: they respond not only to cost differentials or regulatory shifts, but also to strategic decisions shaped by technological change, value-chain restructuring, and the territorial dynamics firms navigate as they reassess their competitive positioning.

For policymakers, understanding these motivations and interconnections is crucial. Relocation processes create complex spatial effects, leading to gains and losses that differ across scales and over time. Effective governance, therefore, needs to go beyond reactive measures and develop coordinated strategies that anticipate relocation drivers, reduce uneven territorial impacts, and enhance local resilience.

Ultimately, future research should further examine the multi-scale implications of firm mobility, especially how local, national and global dynamics interact to influence relocation choices and their effects. Greater focus on firms’ resilience strategies, the evolution of global value chains, and the territorial factors that affect relocation outcomes will be vital for understanding the next phase of globalization and its spatial restructuring.

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ARAUZO-CAROD, Josep-Maria; ARAUJO-ROCHA, Keli. «Offshoring in a globalized world: how firm mobility and globalization reinforce each other». Oikonomics [online]. May 2026, no. 26. ISSN 2330-9546. DOI: https://doi.org/10.7238/o.n26.2607

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