The role of environmental

sustainability in the relocation

choices of MNEs: Back to the
home country or welcome in a
new host country?
Paper by Martina Barbaglia, Roberto Bianchini, Vincenzo Buttice,
Stefano Elia, Marcello M, Mariani
Journal of International Management Volume 29, Issue 5, October
2023, 101059
Presentation by Dillon Christano, Nurdhina Arifa
Part of Presentation
Introduction
Theorical Background
Hypothesis development
Methodology
Result and discussion
Conclusion

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 Introduction
• Several decade many MNEs decide to do offshoring as a strategy to go global.
• Relocation of second degree is situation where firm revise their relocation decisions and relocate formerly offshored
operations and it may come either the form of relocation to home country or relocation to third country.
• While in the previous study, they explain that fight against global warming and awareness to environment increasing
the value chain.
• Stakeholder theory understand the role of sustainability in revision of firm internationalization strategy. It is including
managing sustainability in supply chain and CSR expectation in the strategy.
• The gap seen when two phenomena combine, make MNEs difficult to choose what strategy that they choose between
RHC or RTC.
• the previous study there are no study that incorporate both, and this study also aim to analyze what is the best choice
between RHC or RTC to solve the concern of sustainability.
• The study also investigate the level of regulation strength and effect of RHC vs RTC when needed to relocate. The
study also want to know does the sustainability awareness influence MNEs to RHC for sustainability commitment.

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 Theorical background
2.1
• Stake holder theory offer suitable view to study more about the motives of corporation adoption of sustainable
practice.

• From Freeman previous study at 1984 stake holder is the one affect or affected by organization achievement and
there are primary and secondary stakeholder, it is based on the direct effect to the organization.

• Nowadays social and environment interest have big magnetic effect for attracting stakeholder and sustainability
can make stakeholder create a positive mindset.

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• Many researcher fit stakeholder theory and sustainable management, and it
highlighted that when business activity of sustainable practice it is effective.
• To show the stakeholder expectation organization start to do CSR strategic
development, engaging CSR action to respond the stakeholder.
• CSR action by the corporation can change stakeholder expectation for socially
responsible behavior.
• When company have high commitment, they can meet the expectation of wide range
stakeholder, but B2B companies did not apply sustainable strategic to the process of
production.
• For MNEs meeting the stakeholder expectation related to sustainable is more
challenging because their supply chain span over multiple countries.

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 2.2

• From the previous study, it explain that lack of globalization model is shown by trending of offshoring
activities to low-cost countries and relocation decision of previous offshore activity.

• The main reason why company relocate the production, it is because the influence of environment, social
and governance and the most important is sustainability makes company want to do relocation decision.

• Sustainability-related benefits resulting from RSD is pollution reduction and greener technologies, for social
aspect is increase employment level for local or host country.

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2.3
• Lack of integration of sustainability concern motive influencing RSD, also role of growing
expectation of stakeholder that concerning sustainability.
• MNEs choice is fully based on the sustainability concern stakeholder expectation.
• Signaling theory is basically signal of private company that communicate information to all the
stakeholder and ask them their opinion and they will decide what choice to choose.
• For this case, the information that share is sustainable report, and it can boost the image of the
corporation.
• MNEs that relocate their foreign manufacturing operations are subjected to greater stakeholders'
pressure for sustainable management will choose relocation and it is good for expectation of CSR
Stakeholder.

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2.4
• RHC would recognize by stakeholder as choice suitable to sustainability concern, it have positive impact
for sustainable report.
• RSDs is done because it is good for supply chain and good for the environment when we compare to
move to more far country, it can reduce gas emission, due to reduce the carbon emission from
transportation.
• It also said that the RSD preferred so company can do CSR to meet high stakeholder expectation, but for
outside domestic they will face a big challenge because it the reputation is different and can damage and
impacting loss.
• The reputation in domestic country can be break by the reputation because of the problem from outside
domestic country.
• It can damage the image of the organization, when operate in cultural distant country also have
complicated problem that need to solve.
• RSD is good for reputation in sustainable organization, but to match with their expectation with the
effectiveness of the execution, CSR can show the choices RHC over RTC when they must choose to
relocate
H1: CSR-signalling MNEs are more inclined to engage in an RHC rather than in an RTC when revising
their previous manufacturing offshoring decisions
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2.5
• The policy that created in home country have impact to the company to do sustainability management and
relocation decision and in every country have different regulation.
• It improve the company sustainable practice because they must follow the policy, on the other hand when the
regulation created, company can move to country that have poor regulation.
• The reality MNEs produce pollutant and exploit the environment, that makes country decide to regulate more
strictly about sustainability, and it can increase the awareness in the society.
• The regulation it depend on the government, poor regulation MNEs still produce pollutant, if it strict MNEs
sustainable performance increase.
• Past study said that if it is demanding it will add cost, while if it’s CSR, there are a subsidies and lower cost.
• If company doing RHC, they will get reward when they try to adopt sustainable practice, it is part of benefit
where they do RHC and follow the policy of the home-country.
• Return home to do CSR can increase the regulatory framework and meet the stakeholder expectation. When we
compare to relocating to poor regulated country it bad for the environment.
H2: The level of environmental regulatory stringency in the home country positively moderates the likelihood that CSR-
signaling MNEs engage in an RHC rather in an RTC when revising their previous manufacturing offshoring decisions
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 Methodology

3.1 Data Source

• Hypothesis test: Dataset collected relocations occurred in Europe in the timespan

2002–2016, from the European Restructuring Monitor (ERM)

• At least reduction/creation of at least 100 jobs or affect at least 10 % of the workforce

if the site employs >250 people

• A number of national media sources scanned by the ERM to extract mention of

relocation events. PRESENTATION TITLE 10
• Downloaded all the movements classified by the ERM as “relocation” or
“offshoring/delocalization” available between 2002 and 2016.

• Classified RHC and RTC according to the nation chosen as target for the relocation decision

• Final sample of 150 events: explanatory and control variables are available, by combining the
dataset of relocation events by manufacturing firms

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Framework

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Dependent variable

• The dependent variable of this study is RHC or relocation to home country.

• Used dummy variable, and have 1 value if MNEs performed relocation to

its own home country and 0 if the company has decided to relocate in a
new European country

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Explanatory Variable

• Sustainability report, a dummy variable that is equal to 1 if the MNE

announcing its decision to relocate drafted a sustainability report in the
year prior the announcement date.

• Home country environmental policy stringency, measured as the OECD

EPS index the year prior to the relocation announcement

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 Control Variable

• A number of country-, industry- and firm-level for control variables

• Regards the country effects, control variables that reflect the market-seeking, efficiency-seeking, resource-seeking and
strategic-asset-seeking advantages of the domestic and the first host countries have been encapsulated in the model

• Cultural distance was applied to control for the cultural distance between the home and the first host country.

• Firm-level variables, Firm size has been included to control for the size of the MNE

• Financial crisis controls for the short-term pernicious impacts of the 2007/08 financial crisis.

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 Descriptive statistics

Table 2 shows descriptive statistics of the variables included in paper model and the
corresponding correlation matrix, 150 observations (46 of RHC and 104 of RTC) .

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• Focus on RHC, the average environmental policy stringency of the target home countries,
measured as the average OECD EPS Index, is 3.065, higher than the one in the first host
country (2.954).

• CSR-signalling MNEs tend to repatriate towards more stringent nations (delta stringency
between home and first host country = 0.119) compared to firms not publishing a
sustainability report (delta stringency between home and first host country = 0.039).

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• Table 3, 46% of relocations are executed by CSR-signaling MNEs and 54% are relocations, ​either RHCs
or RTCs.
• Backshoring events appear to MNEs that do not publish a sustainable report with a percentage of 54.3
% compared to the 45.7 % of RHC undertaken by CSR-signaling corporations.
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 •Table 4 is description of the industries included in the

Cont- sample, most of RHC events in the “Manufacture of motor

vehicles, trailers and semitrailers” industry (NACE29) followed
by “Manufacture of chemicals and chemicals products” (NACE
20),etc

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• Table 5 displays the distribution of RHCs/RTCs according to the respective home country,
first host country and second host country.

• The most frequent nation for headquarters' country, is Germany (44 events), they also
confirmed as the preferred target destination after RTCs (24 events). Other hands, most of
the relocations first host nations is from France (28 events).

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 Result and discussion

4.1. Main results

• The author tested hypotheses performing by a set of robust probit models, Table 6:
o The dependent variable (RHC) seems not to be affected by productivity-enhancing and strategic-
asset seeking
o The negative and significant (p < 0.05) coefficient of Host country labor cost
o Financial crisis shows a positive and significant (p < 0.05) relationship with RHC
o The positive and significant (p < 0.01) coefficient of the variable Firm size p

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PRESENTATION TITLE 23
 • Focus on hypothesis 1 Sustainability report and Home country environmental policy stringency are
the main explanatory variables (see model 1, in table 6):
• The variable Sustainability report displays a negative, but not significant correlation with
dependent variable, rejected H1
• The home country environmental policy stringency, appears to be positive and significant (p <
0.10)

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• Model II to assess the potential effect that stringent environmental laws in
the home country:
o It shows positive and significant (p < 0.05 ) result, firms that attach greater priority to
sustainability issues are more likely to exit from foreign markets and move back to
their country of origin if the latter imposes strict environmental policies.
o In Fig. 2 the predicted probability of RHC as a function of Sustainability report,
contingent on Home country environmental policy stringency, taking the values
corresponding to the 10th (2.306) and 90th (3.736) percentiles of the distribution

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4.2. Robustness check

• A set of additional analyses to test the robustness of their baseline findings.

• Ran Model I and Model II, To capture the motivations underlying the first
offshoring decision:
• First host market-seeking advantage over the home country
• First host productivity-enhancing advantage over the home country
• First host strategic asset-seeking advantage over the home country
• Other hands, First host cost-saving advantage over the home country
has been computed as the difference between the home country and
the first host country in the unitary labour cost
• Table 7 Explain that the positive moderating effect of the stringency of
environmental policies in firms' headquarter nation on the
relationship between our main dependent (RHC) and explanatory
(Sustainability report) variables.

26
• Then, substituted controls with four new variables describing
the attractiveness of the first offshoring country compared to the
second host nation:
• First host market-seeking advantage over the second host
country
• First host productivity-enhancing advantage over the
second host country,
• First host strategic asset seeking advantage over the second
host country
• First host cost-saving advantage over the second host
country
• in Table 8. found a positive and significant (p < 0.05)
coefficient of the interaction term, the positive moderating
effect of home countries' environmental policy stringency
on the linkage between the publication of a sustainability
report and RHC is validated

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• Finally, we have performed the main analysis including some additional
observations concerning relocations involving non-EU countries

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Conclusion

• at the moderating effect that the institutional environment might have on

the relationship between the chosen relocation option and disclosure of
sustainable information

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