Reshoring or Not? Multinational Firms’ Resilience Triangle and Co‐Opetitive Risk Analysis Facing Production Shocks

Nowadays, many multinational firms (MNFs) still stick to overseas manufacturing for the benefits of low production costs and tax planning opportunities. However, such a strategy comes along with production shocks caused by power outages, fires, strikes, and so on. In this article, we use a Resilience Triangle framework to measure the risk of production shocks during the shock and recovery time. We explore two risk management strategies for MNFs: enhancing overseas manufacturing resilience via advanced technologies and reshoring to local manufacturing. We outline the MNF's trade-offs among overseas resilience loss, production cost, tax planning opportunity, and local manufacturing subsidy. We quantify the production-and-delivery delays caused by overseas manufacturing shocks and highlight the value of advanced production technologies in mitigating shocks and accelerating recovery. We find that the MNF's production strategy may switch from overseas manufacturing to local manufacturing and then back to overseas manufacturing when the local manufacturing subsidy is not too high and the local manufacturing cost is moderate. We show that overseas manufacturing with advanced production technologies can achieve a win-win situation regarding the MNF's resilience performance and profitability, as they enable the MNF to better balance production risks and financial gains.