How does Industry 4.0 affect international exposure? The interplay between firm innovation and home-country policies in post-offshoring relocation decisions

This paper investigates whether and how Industry 4.0 innovation intensity, which is developed through patenting and which provides a firm-specific ownership advantage, relates to relocation of second degree (RSD) of manufacturing activities, i.e. the movement of previously offshored activities to either the home country (RHC) or a third country (RTC), thus representing a reconfiguration of the firm's extant international exposure. Moreover, we analyse the role of Industry 4.0 policies adopted in the home country, which offers a location advantage that can possibly moderate this relationship. Our findings, based on a sample of 118 RSDs implemented by European companies, reveal that both Industry 4.0 innovation intensity (at the firm level) and policies (at home-country level) have an impact, with the former pushing firms towards RTC, unless the latter are in place at the home country, thus showing the pivotal role of Industry 4.0 policies in re-attracting Industry 4.0 innovative companies in their country of origin.

Automated summary

This study investigates the relationship between Industry 4.0 innovation intensity and the relocation of manufacturing activities. The findings suggest that both innovation intensity and policies play a role in firms' decisions to relocate to a third country, while home country policies are crucial in attracting innovative companies back to their country of origin.