Does It Pay to Be International? Evidence from Industrial District Firms

Internationalization studies have explored how firms structure their value chain globally and specifically how manufacturing activities can be located across countries both through FDIs or global sourcing. On the debate about offshoring, the “smile curve” emphasizes the limited value of manufacturing compared to service-based activities and the need for MNEs to specifically control the latter in advanced countries. Also, many SMEs located in industrial districts (IDs) – considered as local manufacturing systems where innovation and manufacturing are tightly coupled – have invested in offshoring strategies as large MNEs did, with implications on the local supply chain. Current research on backshoring highlights the relevance of a domestic control of production for firms’ competitiveness. This chapter explores district firms’ location choices of manufacturing activities between local and global and the relationship with performance, by considering a sample of about 260 Italian ID firms with international or only domestic production activities.

In the debate concerning offshoring, the smile curve generally emphasises the limited value of manufacturing compared to service-based activities. Many small and medium enterprises (SMEs) in industrial districts (ID)—local manufacturing systems where innovation and production are tightly coupled—also invest in offshoring strategies, therefore transforming local supply chains. Current research on back-shoring highlights the relevance of domestic control of manufacturing for firm competitiveness. This chapter explores ID firms’ location choices of manufacturing activities in a sample of approximately 260 Italian ID firms with international or only domestic production activities. The results show that the international production of components is not associated with higher profitability for high-quality goods (as measured by return on assets) but could be a profitable strategy for low-quality goods.