Linking production geography and financial performance
International Journal of Operations & Production Management
ISSN: 0144-3577
Article publication date: 14 August 2023
Issue publication date: 26 April 2024
Abstract
Purpose
When is it more profitable for multinational manufacturers to manufacture in high-cost environments and when in low-cost environments? While the literature offers many cues to answer this question, too little empirical research directly addresses this. In this study, we quantitatively and empirically investigate the financial effect of companies' production footprint in low-cost and high-cost environments for different types of production networks.
Design/methodology/approach
Using the data of 770 multinational manufacturing companies, we analyze the relationship between production footprints and profitability during four calendar semesters in 2018 and 2019 (N = 2,940), investigating the moderating role of companies' production network type.
Findings
We find that companies with networks distinguished by both high levels of product complexity and process sophistication profit the most from producing to a greater extent in high-cost countries. For these companies, shifting production to low-cost countries would be associated with negative performance implications.
Practical implications
Our findings suggest that the production geography of companies should be attuned to their network type, as defined by the companies' process sophistication and product complexity. Manufacturing in low-cost countries is not always the best choice, as doing so can adversely affect profits if the products are highly innovative and the production processes are complex.
Originality/value
We contribute to the scarce empirical literature on managing global production networks and provide a data-driven analysis that contributes to answering some of the enduring questions in this critical area.
Keywords
Acknowledgements
Erratum: It has come to the attention of the publisher that the article, Oliver von Dzengelevski, Torbjørn H. Netland, Ann Vereecke and Kasra Ferdows “Linking production geography and financial performance”, published in International Journal of Operations & Production Management was published with the incorrect sentence ‘When is manufacturing in high-cost environments and more profitable for multinational manufacturers and when in low-cost environments?’ in the Abstract. The correct sentence is ‘When is it more profitable for multinational manufacturers to manufacture in high-cost environments and when in low-cost environments?’. The errors were introduced in the editorial process and have now been corrected in the online version. The publisher sincerely apologises for these errors and for any inconvenience caused.
Citation
von Dzengelevski, O., Netland, T.H., Vereecke, A. and Ferdows, K. (2024), "Linking production geography and financial performance", International Journal of Operations & Production Management, Vol. 44 No. 5, pp. 1034-1053. https://doi.org/10.1108/IJOPM-11-2022-0762
Publisher
:Emerald Publishing Limited
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