Journal of Purchasing & Supply Management 27 (2021) 100682

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Journal of Purchasing and Supply Management

journal homepage: www.elsevier.com/locate/pursup

Reputational risk as a factor in the offshore location choice

Bella B. Nujen a, *, Hans Solli-Sæther a, Deodat Mwesiumo b, Bianca Hammer a
a
Norwegian University of Science and Technology, Department of International Business, P.O.Box 1517, 6025, Aalesund, Norway
b
Molde University College, Specialized University in Logistics, Department of Logistics, P.O.Box 2110, 6402, MoldeMolde, Norway

A R T I C L E I N F O A B S T R A C T

Keywords: Drawing on extant literature and eight case firms, this paper explores reputational risk as an essential factor in
Reputational risk selecting offshore locations. By categorizing and aggregating insights from the empirical data and the relevant
International sourcing literature, the paper identifies country reputational risk as a factor determining the firm’s propensity to exclude
Offshoring
specific offshore locations. However, its effect is contingent upon managers’ interpretation of the critical ele­
CSR
Country risk
ments of the business environment in a particular country. Thus, the study contributes by demystifying the role
Supplier risk of ‘managerial inputs’, which are often neglected within international sourcing literature. Further, reputational
risk is delineated as a higher-order construct comprised of three lower-order constructs: unethical practices,
institutional weakness, and quality concerns. Our findings distinguish reputational risk from the CSR framework
because the dimensions of reputational risk identified in this study transcend beyond the governance, ethics,
environmental and social spheres of CSR. This way, the study contributes to a holistic representation of repu­
tational risk that can allow researchers to match its broad predictors with broad outcomes.

1. Introduction
In today’s interconnected economies and ever-growing dependency
on global supply chains, managing supply risks is imperative. Although
there are different forms of supply risks (see Tang and Musa, 2011),
previous research on supply chain risks mostly focused on events that
have immediate cost implications (Lemke and Petersen, 2018). Such
events include facility breakdowns, transportation mishaps, and quality
failures. This is reasonable considering that firms tend to focus on the
variables that directly drive financial profitability. While cost consid­
erations are still a concern and a key performance indicator when
managing global supply chains, reputational risk exposure has also
begun to gain attention among supply chain scholars (e.g., Roehrich
et al., 2014; Petersen and Lemke, 2015; Manello and Callabrese, 2019).
This is because reputation, which is defined as stakeholder’s overall
perception of a firm (Lienland et al., 2013; Lemke and Petersen, 2018),
can have significant financial impact (Bregman et al., 2015). This is
understandable considering the fact that stakeholders, such as cus­
tomers and investors, expect firms to engage in responsible operations.
Therefore, failure to detect, manage and mitigate practices such as
modern slavery, poor working conditions, labour, discrimination, child
labour, low or unfair wages, and corruption can have a detrimental ef­
fect on a firm’s reputation (Philips and Caldwell, 2005; Ellram et al.,
2013; Roehrich et al., 2014; Wright, 2016; Benstead et al., 2018). It is
important to note that a firm’s reputation can also be affected by actions
of suppliers beyond the first tier (Petersen and Lemke, 2015; Lemke and
Petersen, 2018) as negligent supplier behaviour may be projected onto
the buying firm, bringing negative publicity and reputational damage
(Busse et al., 2017; Lemke and Petersen, 2018). Despite increased
attention and regulatory efforts to establish global sustainability and
equality principles and standards, many countries especially those at so
called low-wage locations have failed to embrace these standards
(Cedrola et al., 2016; Brinks et al., 2019).
There have been scholarly efforts to investigate issues related to
reputational risks in global supply chains. Previous studies have
explored aspects such as the role of reputation factors in supplier se­
lection (Lienland et al., 2013; Manello and Callabrese, 2019), reputa­
tional risk exposure as a driver in a firm’s decision to implement
sustainable supply chain management (Roehrich et al., 2014), reputa­
tional risks that are embedded in the supply chains (Petersen and Lemke,
2015), and reputational risk as a leverage for activist groups to convince
and compel firms to improve sourcing practices (Wright, 2016).
Although the extant literature provides valuable insights on issues
related to reputational risks, several important facets remain unex­
plored. One of such facets is the role of reputational risks in the offshore
location choice. Offshoring, which refers to the relocation of a firm’s

* Corresponding author.
E-mail address: Bella.nujen@ntnu.no (B.B. Nujen).

https://doi.org/10.1016/j.pursup.2021.100682
Received 11 June 2020; Received in revised form 1 March 2021; Accepted 4 March 2021
Available online 10 March 2021
1478-4092/© 2021 Elsevier Ltd. All rights reserved.
B.B. Nujen et al.
activities ‘from the home country to a foreign location’ (Bals et al., 2013,
p. 3), is perceived as a cross-border disruption of business activities that
contributes to the development of global value chains. It builds on the
fundamental idea that it is possible to disperse different parts of
manufacturing and service operations independently of the location
context (Gereffi et al., 2001). To a large extent, offshoring is driven by
the desire to profit from efficiency advantages accessible at low-wage
locations (Manning et al., 2008; Contractor et al., 2010). Considering
the negative impact that reputational risks might have on firm’s finan­
cial performance, an interesting question to pose is how reputational
risk influence the offshore location choice? which is the question
addressed by the current study.
Following Roehrich et al. (2014, p. 698), this paper defines reputa­
tional risk as the probability of occurrence of a negative event or prac­
tice that stakeholders will detect and that will subsequently lead to an
adverse impact on a firm’s reputation. We begin by reviewing literature
related to firm reputation and its impact on offshoring decision making,
as there are few studies focusing on these aspects when location choices
are considered (Busse et al., 2017). An enhanced understanding of
reputation aspects in offshoring decisions should help both practitioners
and academics to re-evaluate the value and further develop established
measures for location- and supplier selection praxis. Subsequently, we
conduct an exploratory multiple-case study to provide empirical insights
on the subject. In so doing, the current study contributes to the body of
knowledge on reputational risks in supply chains in two ways. First, it
identifies country reputational risk as a construct and explains the
mechanism through which it affects offshoring location decisions. Sec­
ond, it identifies three factors that determine country reputational risk,
namely unethical practices, institutional weaknesses, and quality con­
cerns. While unethical practices and institutional weaknesses associated
with a particular country are considered as risky due to their potential to
undermine a firm’s corporate social responsibility (CSR) image, quality
concerns directly affect stakeholders’ perceptions about a firm’s ability
to deliver high quality offerings.
The next section covers a theoretical frame of reference derived from
the fields of supply chain management and international sourcing. This
is followed by a presentation of the methodological approach employed.
Our cases are then presented through an analysis and discussion,
accompanied by a conceptual model and propositions. Reflections and
closing remarks conclude the paper.
2. Frame of reference
2.1. Offshoring and location choice
Ellram et al. (2013) describe offshoring as a manufacturing location
decision, where manufacturing facilities or operations are placed at a
different destination to the firm’s headquarters. Regarding the driving
factors for offshoring, researchers have reported aspects such as
lowering the cost without significantly reducing quality (Hätönen and
Eriksson, 2009; Nielsen et al., 2017), market opening, entrepreneurial
possibilities, proximity to suppliers in new markets, and access to
location-specific resources such as human capital (Roza et al., 2011;
Barbieri et al., 2019). Obtaining country-level data is therefore impor­
tant when investigating motivation drivers (Kinkel and Maloca, 2009;
Tate and Bals, 2017; Kalchschmidt et al., 2020), as these drivers are
location-specific factors that influence relocation decisions (Caniato
et al., 2015; Barbieri et al., 2019). Research shows that firms that have
embarked on offshoring strategies through specializing in limited ac­
tivities have been able to achieve cost-effective processes and enhance
their core competence activities (Zaheer and Nachum, 2011). Other
advantages mentioned include increased proximity to local customers in
the host countries and increased supply chain flexibility, e.g. due to
being closer to industrial clusters for adjacent businesses (Barbieri et al.,
2019; Nujen et al., 2019). Successful optimization of activities along
supply chains in different locations can produce gains due to
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Journal of Purchasing and Supply Management 27 (2021) 100682
location-specific advantages. Whatever firms choose to do beyond the
boundaries of their home country, they do it for a reason, as firms’
offshoring strategies are goal oriented and therefore rational (Benito,
2015, p. 15). However, extending the focal firm’s boundaries as well as
crossing national borders can be demanding and result in substantial
strategic implications (Larsen et al., 2013). For example, firms might
encounter obstacles and risks associated with language, cultural,
knowledge, mental and geographical proximities (Haleem et al., 2018;
Nujen et al., 2018).
Principally, offshoring involves transactions among different parties
separated by economic, political, geographical and socioeconomic dif­
ferences, where the ‘rules of the game’ of each country have significant
implications for the focal firm (Kim and Aguilera, 2016, p. 143).
Consequently, location choices have some inherent risk issues that
should be considered when offshoring, such as reputation, security
regulations, property rights, policy-making and institutional aspects
(Newburry, 2012; Hansen et al., 2017), which are often associated with
political stability in a country (Bremmer, 2005; Dunning, 2009). Loca­
tion decisions embody the basic tenets of the international sourcing
field, as they impact numerous key strategic decisions, such as entry
modes, foreign direct investments (FDI), ownership advantages and
resource advantages, among others (Benito, 2015; Nilesen et al., 2017;
Giunipero et al., 2019). However, in contrast to other related disciplines,
such as international economics, international sourcing emphasizes that
a location is not a generic resource in and of itself. Instead, it is perceived
as a firm-specific resource, since deriving advantages from a host loca­
tion depends on the focal firm’s capabilities to transform specific loca­
tion resources in order to yield beneficial returns (Zaheer and Nachum,
2011; Kim and Aguilera, 2016). The choice of location is influenced by
multiple firm-, managerial- and country-specific aspects, with inherent
considerable strategic consequences (Ellis et al., 2010; Maltz et al.,
2011; Nilesen et al., 2017). Accordingly, firms must make a substantial
number of decisions concerning where and how they choose to invest
and conduct their business.
These decisions are often based on two continua: the geographic
location and the governance and ownership mode (Caniato et al., 2015;
Giunipero et al., 2019). A firm can either hand over certain activities to
external providers, known as outsourcing (Tallman and Mudambi,
2013), or keep all of its activities in house, known as a captive model;
both can be split between domestic and/or foreign locations through
offshoring (Hätönen and Eriksson, 2009; Contractor et al., 2010; Bals
et al., 2013). According to Giunipero et al. (2019) governance and
ownership aspects have dominated a vast majority of studies driving
international sourcing research, resulting in inadequate explanations for
why firms select a certain location over another (Kim and Aguilera,
2016). This paper focuses on offshoring decisions and thus, the choice of
location (cf. ‘where’ and ‘why’) will be discussed regardless of gover­
nance modes (cf. ‘how’). Important perspectives from the supply chain
literature are also emphasized, since location decisions can affect the
entire value chain (Caniato et al., 2015; Giunipero et al., 2019) as a firm
is invariably dependent on external parties when relocating its activities
to a foreign country.
2.2. Risks associated with offshoring
As shown in the previous section, offshoring is associated not only
with various advantages, but also with certain risks. Therefore, mana­
gerial attention is required in order to dissipate some of the uncertainty
involved in conducting operations abroad. Risks can emerge in diverse
situations and contexts and have been described as encompassing two
components, namely potential losses if the risk is realised and the
probability of these losses (Manuj and Mentzer, 2008; Roehrich et al.,
2014). Others refer to risk as the chance of a threat, damage, loss or
other undesired consequences (Harland et al., 2003, p. 52). However,
risk is relative to these dimensions, since what is perceived as a risk is
based on interpretation (and is thereby strongly subjective); this is true
B.B. Nujen et al.
also for risk-avoidance tendencies (Dolphin, 2004; Lemke and Petersen,
2018). A conventional understanding of risk as a phenomenon is that it
is associated with adverse events that lead to a different outcome to a
pre-planned or desired situation (Manuj and Mentzer, 2008). Such un­
foreseen or unexpected events can arise from both exogenous and
endogenous forces (Roehrich et al., 2014; Kim and Aguilera, 2016).
In the context of offshoring, assessing possible risk factors is of sig­
nificant importance, as it is such issues that often underlie the buying
firms’ behaviour (Ellis et al., 2010; Hansen et al., 2017). Commonly, the
risks referred to when deciding on where and how to offshore are
assessed through measures and calculations concerning, for example,
the quality, quantity, capacity, resource availability and control issues
(Solli-Sæther and Gottschalk, 2007; Wagner et al., 2011; Lienland et al.,
2013). Despite the usefulness of such monitoring praxis, it is suggested
that risk is mainly based on individual perception, rather than measures
derived from objective facts (Ellis et al., 2010; Hansen et al., 2017). One
type of risk that has received limited attention in the context of location
decisions is reputational risk (Caniato et al., 2015; Di Mauro et al.,
2018). Within international marketing and supply chain literature,
however, reputation is a known risk factor, especially with regard to
brand image (Lienland et al., 2013; Lemke and Petersen, 2018).
Although this study is focusing on offshore location decision, it is
important to note that reputation as a risk also should be accentuated
when firms are considering backshoring (also referred to as reshoring),
which can be defined as the relocation of manufacturing activities back
to its origin, often located in the West (Kinkel and Maloca, 2009; Fra­
tocchi et al., 2014; Nujen et al., 2019). For instance, Grappi et al. showed
that differences in sourcing strategies and reputation impacted on how
firms reacted to demand-side perception and their own location de­
cisions. This was especially present when addressing concerns con­
nected to ‘ethical issues in host countries’, where backshoring was
perceived as an act of ethical firm behaviour which meant firms gave up
possible (unethical) benefits offered by offshoring in emerging countries
(Grappi et al., 2018, p. 196). Similar arguments were brought to the fore
when addressing the aspect of brand image, which were exemplified by
the British fashion company Burberry, who began to backshore activities
to the UK, acknowledging the high value of the made in Britain marker
in capitalizing on the brand’s heritage (Grappi et al., 2018, p. 206). A
recent framework on relocation drivers, covering both offshoring and
backshoring, shows that the decision to repatriate back home is often a
consequence of poor performance and quality related to supply chain
factors and risks (Johansson et al., 2019). Supply chain risk has in
particularly been a frequently cited factor driving firms to embark on
backshosring (Boffelli et al., 2020; Stentoft et al., 2016). Despite such
recognition, reputation as a risk aspect is only in its embryo stage also in
the context of backshoring research.
2.3. Firm reputational risk
According to Dolphin (2004), reputation can be defined as a distri­
bution of opinions about an entity. Others define it as beliefs about the
character of a person or thing in general (Murray, 2004) or a stake­
holder’s overall perception of a firm (Lienland et al., 2013; Lemke and
Petersen, 2018). Yet others interpret reputation as a phenomenon that
affects stakeholders’ perception of the future performance of a firm
which provides some sort of signal about the quality of the firm’s
products (Manello and Calabrese, 2019). A common feature of these
definitions is the notion that someone has an opinion or a perception of a
firm which can influence it, either positively or negatively. Thus,
reputation also entails risk, as it is a dynamic and valuable asset for a
firm (Schwartz, 2000). Regardless of how reputation is defined, it is
crucial for firms to build and sustain a positive reputation in order to
create a competitive advantage (Dolphin, 2004). Plausibly, the under­
estimation of reputational risk, can lead to negative repercussions since
it can offset consumer goodwill because of, for example, defective goods,
repairs or replacement costs (Kumar et al., 2010). Furthermore, negative
3
Journal of Purchasing and Supply Management 27 (2021) 100682
events with a damaging impact on a firm’s reputation can, for instance,
be connected to the neglect of CSR, where stakeholders expect a firm to
act ‘right’ (e.g., by not employing child labour, being conscious about
environmental and sustainability issues) (Porter and Kramer, 2006).
Petersen and Lemke (2015) unravelled the concept of reputation and
identified dimensions that form it: ‘management and their capabilities,
how the organisation utilises its resources, the long-term investments
made, products and services offered, the management of employees,
innovativeness and, lastly, corporate social responsibility (CSR)’ (p.
496). Clearly, while the first seven dimensions mostly relate to the firm’s
ability to convert resources and activities into value, CSR is related to
the firm’s ability to integrate other critical concerns in their operations
and interactions with their stakeholders. Already in 2004, Bhattacharya
and Sen (2004) observed that web sites of more than 80% of the Fortune
500 companies addressed CSR issues. This suggests that for a long time,
businesses have had strong beliefs about the imperativeness of CSR. In
the context of supply chain management, Lemke and Petersen (2013)
suggested four distinctive spheres of CSR: governance, ethics, environ­
ment and social. The first sphere encapsulates how firms are interacting
with stakeholders and deploying their resources while being embedded
in social structures and international networks. The ethical sphere rep­
resents elements of stakeholders, including the focal firms, expectations,
willingness and responsibilities. In the context of global supply chains,
ethics covers a large proportion of firms’ activities; from materials and
working processes, cultural zones, to individual viewpoints and national
legal systems. The third sphere refers to firms’ responsibilities and ac­
tions when it comes to environmental issues and business strategy. The
last sphere refers to firms’ social responsibilities and therefore include
the expectations for business leaders to surpass their fiduciary duties
(Petersen and Lemke, 2015, pp. 498–499). The authors advocate that
CSR is a phenomenon that is similar to that of reputation, but not
necessarily equal to the concept of reputation itself.
Accordingly, when considering risks from the concept of CSR,
negative events are in some way predictable or calculated risks to a
firm’s reputation and are thereby directly derived from the focal firm’s
actions; however, reputation encompasses a spill-over effect. For
example, reputation aspects can have both an indirect and a direct effect
on different members of a supply chain via activities of a key partner or a
supplier beyond the first tier in a host country (Petersen and Lemke,
2015; Hannibal and Kauppi, 2018). Thus, reputational risk should be
relevant to supplier reputation as well (Manello and Calabrese, 2019).
After all, most supply chains have some form of global links and consist
of several tiers, and thus the choice of governing can be difficult to
pinpoint (Wagner et al., 2011). However, this might also be the case for
‘simple’ dyadic relationships, as the buying firm does not always possess
full information about its suppliers; because of information asymmetries
(Busse et al., 2017). Accordingly, selecting a supplier who engages in
unethical practices can be likened to what Barthélemy (2003) refers to
as a ‘deadly sin’. However, just as being associated with less reputable
suppliers can decrease a firm’s legitimacy and damage its reputation,
affiliation with responsible suppliers that enjoy a good reputation can
enhance a firm’s reputation (Petersen and Lemke, 2015; Lemke and
Petersen, 2018). Yet, supplier reputation has tended to receive limited
attention (Lienland et al., 2013).
This may be ‘natural’ as offshoring as a relocation strategy has
mainly been driven by the desire to profit from cost advantages acces­
sible at low-wage locations (Manning et al., 2008; Contractor et al.,
2010). However, firms do not always embark on offshoring to cut costs.
The costs involved in location choice and buyer–supplier relations might
come as a ‘secondary’ requirement, with the focus being directed instead
towards ‘the most proper’ supplier or to the foreign location with
shorter/closer cultural and/or mental proximities, to reduce potential
obstacles and risks associated with global operations. One of the ways of
reducing risk in offshoring is by initiating close and long-term re­
lationships with selected suppliers (Yu and Goh, 2014). This has shown
to be advantageous especially with regard to risk aspects involving
B.B. Nujen et al.
quality and lead time (cf. tangible risks) (Kumar et al., 2010). Another
well-established method of dealing with risks in buyer–supplier re­
lations is through contracting. According to Lemke and Petersen (2018),
reputational risks rarely result in the disruption of resources and they
hardly impact the quality and quantity of a supply, two major risks that
receive the most attention. Consequently, a contract can never be
exhaustive and protect against unforeseen events that might emerge
(Wagner et al., 2011). As such, a contract has limited value in the
context of reputational risk, as loss of reputation can happen rapidly and
regardless of any formal arrangements. This was vividly illustrated in
the Foxconn scandal in China and the horsemeat scandal in Europe
(Czinota et al., 2014; Lemke and Petersen, 2018), both of which have
been heavily reported globally. It is clear that contractual arrangements
are an inadequate control mechanism, yet a contract is not without
value, as a possibility of its termination may protect against some of the
risks. As reputation is a fluid phenomenon based on individual and so­
cietal perception, negative reputation can last a long time, also after any
contracts have been terminated. Consequently, when targeting reputa­
tion, CSR is either endogenous or accounted for and often included in
contractual agreements, therefore the concept of reputational risk is a
higher order construct.
2.4. Country reputational risk
Firms compete for business but a firm’s ability to compete is influ­
enced by its national setting (Porter, 1990). Identifying suitable coun­
tries in which to conduct operations, either through captive models or by
foreign suppliers requires firms to consider multiple risk factors.
Research has highlighted firms being used as bad examples by activist
groups who aim to damage their image, based on their location in a
given country (Hoejmose et al., 2014). Thus, when introducing repu­
tation in the context of offshoring, we can assume that its spill-over ef­
fects induce a higher level of uncertainty regarding firms’ location
choices because of its ‘fluidity’. Yet most location studies within inter­
national sourcing have targeted more tangible aspects, such as currency
exchange rates, production infrastructure, FDI or GDP when evaluating
host countries (cf. Dunning, 2009). Similar assumptions are being made
within the supply chain literature. For instance, Ellram et al. (2013)
classify reputational risk as a global supply chain interruption risk rather
than a country-related risk. However, supplier and location choices in­
fluence the perception of both the consumer and the shareholder as well
as managerial behaviour decisions (Ellis et al., 2010; Roehrich et al.,
2014). By associating the handling of reputational outcomes with
perception, reputation can be considered as an intangible asset (Kim and
Aguilera, 2016; Lemke and Petersen, 2018). Hence, firms that offshore
their production to external suppliers cannot transfer the risk related to
unethical practices at the supplying firm’s site but must seek active
management when supplier and location decisions are being made
(Foerstl et al., 2010; Busse et al., 2017; Benstead et al., 2018). Conse­
quently, building a firm’s reputation is not only linked to the charac­
teristics of their products and brand image, but is closely connected to a
host country’s reputation and its supplier base (Loo and Davies, 2006;
Manello and Calabrese, 2019).
Recently, Sony decided to avoid certain materials in their products to
avoid problems in sourcing from countries located in conflict areas
(Petersen and Lemke, 2015); this shows that the buyer’s perception of
the supplying firm and its location is also affected by the
country-of-origin (COO) effect. This is also explained as the extent to
which the place of manufacture influences brand evaluation, as well as
individual’s perception about a country’s products (Newburry, 2012).
Like reputational risk, the COO effect has been widely researched with
respect to firm products serving the business-to-consumer (B2C) market,
while firm reputation and certain aspects concerning a country’s repu­
tation are less well understood (Newburry, 2012; Cedrola et al., 2016).
Products made in certain countries may be subject to a specific category
of buying firms in industrial markets due to stereotyping judgements in
4
Journal of Purchasing and Supply Management 27 (2021) 100682
terms of production quality and other attributes, such as culture,
tradition and social standards, ascribed to those countries (Bradley,
2001; Cedrola et al., 2016). Such stereotyping or perceptions of different
countries is closely related to formal and informal institutional forces
(Brinks et al., 2019). While formal institutional forces refer to codified
laws such as property rights, informal institutional forces refer to
embedded and tacit notions based on collective consent among societal
actors, such as shared values, norms and taboos (Kim and Aguilera,
2016, p. 143). Consequently, who the buying firm engages with and
what countries it does business in can either enhance or lower its
reputation and thereby represents a critical factor for its survival (Porter
and Kramer, 2006). This implies that firms are most likely adapt to
institutional pressure because of their need to gain legitimacy and
establish a positive reputation (DiMaggio and Powell, 1983).
Acting in accordance with what is perceived as legitimate in a society
when executing location strategies has been observed within the fields of
supply chain management and international sourcing. For example, the
influential work by North (1990), which examined how and to what
extent institutional facets within different countries influence location
decisions by multinational businesses, highlighted institutional de­
terminants along with economic factors. Acts of corruption have been
acknowledged as an explanation of why some transactions do not occur;
these can negatively affect reputation and thus corruption has a negative
effect on multinational business location decisions (in Kim and Aguilera,
2016). A similar logic has been reported in a study carried out by Glover
et al. (2014). Here, it was claimed that focus on sustainability practices
along the supply chain, which has gained momentous interest from both
the public and the policy makers, increases a firm’s legitimacy and
reputation, and vice versa (Busse et al., 2017). Hence, regulatory bodies
(formal institutional forces) and other stakeholders, such as animal and
human-rights interest groups (informal institutional forces) compel
firms to incorporate environmental and social sustainability factors in
their supplier and location decisions (Czinota et al., 2014; Hannibal and
Kauppi, 2018). Similarly, a number of industries and countries are
ascribed a high social risk exposure (e.g., textile industries in certain
Asian countries), stressing COO considerations (Bradley, 2001; Loo and
Davies, 2006; Cedrola and Battaglia, 2012; Hoejmose et al., 2014).
Interestingly however, the overwhelming majority of studies on the COO
effect targeting location and supplier decisions focus on developed
country sourcing (Maltz et al., 2011, p. 798).
In summary, the frame of reference elaborated above suggests that
the international sourcing literature heightens key motives for locating
operations abroad: to acquire resources (both raw materials and human
capital), to reduce cost of production or to enter new markets, without
incurring extensive costs. Reputational risk builds on societal opinion
and concerns about investments in countries and suppliers where strong
CSR issues are brought to the fore, which leads to huge penalties or, in a
worst-case scenario, customer boycotts. Similarly, drawing on research
in COO, choosing to locate operations in countries associated with
corruption or low production quality is likely to cause drawback on a
firm’s image. Depending on what argument underpins the offshore
location choice, these views are contradictory, as a location is attractive
when targeting favourable competitive conditions from the point of
view of international sourcing, while when including the latter, policies
and institutional forces run at the same location can harm the buying
firms’ reputability. More so, the emergent emphasis toward aspects such
as supplier malfeasance, manufacturing footprints, “Made in”, and
workforce issues related to child labour exemplified in the reviewed
literature, accentuating reputation is both timely and necessary. Thus,
our frame of reference pinpoints several issues that lend themselves to
further investigation, specifically regarding how reputational risk is
perceived by buying firms when location decisions are being made.
B.B. Nujen et al. Journal of Purchasing and Supply Management 27 (2021) 100682

3. Method representation of different experiences, strategies, operational tactics

3.1. Research design
This study deployed an exploratory qualitative multiple case study-
design that allowed comparison and solid evaluation of key aspects
related to reputational risk. As such, we partly respond to the call for
more qualitative methodological approaches when studying
manufacturing firms that increasingly confront daunting challenges in
their global operations (Narasimhan, 2014, p. 210). The major benefit of
the qualitative approach is that it provides a depth and richness of data,
which is difficult to attain in quantitative research (Voss et al., 2002;
Yin, 2018).
Given the fluid nature of reputational risk, and our goal to investi­
gate its influences on firms’ location decisions, applying qualitative
research was appropriate as it allowed us to study the case firms within
their natural setting and cultural context (Voss et al., 2002).
3.2. Case selection
Case selection or sampling is an important methodological choice in
case study research. Miles et al. (2020) note that sampling in qualitative
research involves two actions. The first action is to set boundaries that
define aspects of the target case(s) that can be studied within the limits
of time and budget. The second action is to create a sample frame that
has a potential for uncovering, confirming or qualifying the basic pro­
cesses or constructs that underpin the study. Accordingly, we chose
Norway as our research setting for two reasons. The first is the feasibility
of obtaining rich qualitative data within our time and budget con­
straints. The second is that it is one of the most expensive countries to
manufacture and do business in, as well as a country with some of the
most environmentally friendly policies in the world (Nujen et al., 2018;
OECD, 2019; Mäkitie et al., 2020), Norway has a considerable number of
companies that have engaged in offshoring (more or less the same for the
whole Nordic region, see e.g., Heikkilä et al., 2018), and therefore offers
a suitable sampling frame for the study. Additionally, the context is
interesting as it can help illuminate important facets of the opposing
views noted in our frame reference.
As for the selected cases, this study involved seven manufacturing
firms and one financial services provider. Regarding aspects of the target
case(s), we followed Eisenhardt and Graebner (2007) and selected firms
that vary in terms of offshoring’ strategy (e.g., anti-offshoring’ strategy
and backshoring some of its production), size, demand, production
methods (e.g., ETO, industrial products, consumer products and ser­
vices), and experiences with offshoring strategies among the case firms.
Selecting firms with diverse characteristics ensured a broader
and perceptions among the decision makers. This helped to strengthen
the precision, validity, stability, and trustworthiness of the findings
(Miles et al., 2020). As such, our approach followed a theoretical
replication logic (Yin, 2018, p.61). Table 1 summarizes key character­
istics of the selected cases and Appendix 1 provides case profiles.
As shown by Table 1, the firms employed sourcing strategies
encompassing outsourcing at the home location (onshoring), captive
centres at foreign locations (offshore insourcing) and offshore
outsourcing (offshoring), where independent third-party suppliers
perform operations at both high-cost and low-cost locations. The two
maritime equipment suppliers had different sourcing strategies – one
followed an ‘anti-offshoring’ strategy in a high-cost location by autom­
atization and use of advanced machinery, while the other offshored non-
advanced products to China. A shipbuilding firm was offshoring pro­
duction of hulls to low-wage countries in Eastern Europe, however, they
decided to backshore their hull production through investments in
modern welding robots and new production lines and methods. One of
the furniture firms had a captive sourcing model with onshore and
offshore outsourcing in Europe, Asia and America, while the other two
furniture firms, a finance service provider and a plastic component
supplier all embraced offshore outsourcing models.
3.3. Data collection and analysis
The primary mode of data collection was gathered via 18 face-to-face
interviews ranging from 60 to 90 min in length and using a semi-
structured interview format based on our reviewed literature (see the
interview guide in Appendix 2). The interviewees in this study were
managers who had been involved with offshoring location decisions. It
was important to select respondents that could best provide information
that was relevant to our research question and hence meet the objectives
of this study (Patton, 1990, p. 169). All interviews were conducted on
site, recorded with the respondents’ consent, and then transcribed
verbatim before being converted into case descriptions. The case de­
scriptions ranged between 10 and 20 pages and were shared with most
of the case firms, with a request to supplement information and address
any inaccuracies. To capture the essence of reputational risk, the data
was iterated between four authors to identify and arrive at a consensus
understanding of patterns (Yin, 2018). To ensure reliability, we devel­
oped a case study base, which included relevant information such as
observations, notes, interview guidelines, transcripts, and data
description (Yin, 2018, pp. 130–34).
As a first step, data analysis was based on an initial crude coding of
firms, production, type of relocation strategies and current sourcing
locations as mentioned in section 3.2 (Table 1). Since we adhere to

Table 1
Overview of case firms, production and location strategies.
Case firm Product Sourcing strategy Sourcing location Position along the global Customer segment Market
supply network location

Maritime equipment supplier Engineer -To- Anti-offshoring Norway Lead in a niche market Industrial product Global
Order
Ship technology supplier Engineer -To- Captive Offshoring China Supplier Industrial product Global
Order
Shipbuilder Engineer -To- Offshoring & Backshoring Central & Eastern SME Industrial product Global
Order Europe
Financial services Payment Offshore Outsourcing Europe & Asia Intermediary Services to industry and Nordics
services end-consumers
Plastic component supplier Make -to- Offshore Outsourcing & Scandinavia, Europe SME Industrial product Scandinavia
Order Nearshoring & Asia
Furniture firm (beds) Assemble-to- Offshore Outsourcing & Scandinavia SME Consumer products Scandinavia
Order Nearshoring &Europe
Furniture firm (chairs) Make -to- Onshoring, Offshoring & Europe, Asia & Lead Consumer product Europe & USA
Order Captive Offshoring Americas
Manufacturer of children’s Make -To- Offshore Outsourcing Central & East Lead Consumer product Europe & Asia
furniture and accessories Stock Europe

5
B.B. Nujen et al. Journal of Purchasing and Supply Management 27 (2021) 100682

reputational risk in line with Roehrich et al. (2014), the coding was their operations to CEE because of proximity issues, which has resulted
subsequently refined to distinguish between different aspects of repu­ in overall good experiences. Despite this, Ukraine was an unthinkable
tational risk. Thus, we investigated the cases and searched for opinions country to do business in, because of perceived differences in culture and
about entity, beliefs about the character of work praxis, and perceptions especially because of experiences with corruption (cf. Kim and Aguilera,
of a firm, i.e. negative events or practices that could influence or harm 2016). One of the respondents in the shipbuilding firm stated: ‘…cor­
the reputation and/or the image of the focal firm based on location ruption is institutionalized over there … for us to conduct operations or
decision targeting low-wage countries. In so doing, we could break down engage in partnership means that we must break our laws’. It should be
the data and create themes and categorizations. Accordingly, our mentioned, though, that the same firm has favoured onshoring, while
analytical approach was based on categorization and aggregation of engaging different sourcing strategies in other low-wage countries. In
insights derived from the collected case material, which was compared fact, they even have restrictions for domestic suppliers that certain
within the cases as well as with the relevant literature, in consonance components should not be sourced from China, because of the reputa­
with the recommendations of Eisenhardt (1989). This helped us to move tion concerning quality issues among the Chinese supplier pool for this
from statements made by our interviewees to create first order con­ industry. This criterion enabled the firm to adopt a favourable price
structs of reputational risk (Fig. 1) in addition to increasing the construct setting strategy, as attested to by one of their sub-suppliers (the mari­
validity of our research (Ellram, 1996; Yin, 2018). Additionally, to time equipment firm in our sample). Interestingly, our further analysis
better understand the research context, secondary sources of material regarding corruption showed that the new locations selected by our case
such as code of conducts and contractual announcements and articles firms tended to have better corruption perception index (CPI) scores
were retrieved from the internet and company websites before con­ compared to their previous locations (Table 2). The only exception is the
ducting the interviews. The thorough review of the code of conducts was decision of Chair to locate in Brazil (relatively higher corruption level)
very useful during our interviews and hence especially for our analysis, instead of India. The reason for preferring Brazil was that they did not
as such documents often reveal the ethical guidelines a buying firm want to be associated with India’s reputation for violating of animal
adheres to. The retrieved documents were also used during the trian­ rights. This suggests that firms attach weight to the different elements
gulation phase (Eisenhardt 1989; Voss et al., 2002). As a final step, the that constitute a country’s reputation risk. For instance, in the case of
collected data was also compared with the corruption perception index Chair, it appears that being associated with the violation of animal rights
(Table 2), which assists with external validation (Yin, 2018, pp. 42, 46). would be more impactful to them than operating in a country with
relatively higher corruption.
4. Findings and analysis Overall, quality as a risk factor received most attention from all firms
and had a strong impact on the supplier selection process. Although
4.1. Reputational risk factors influencing offshoring decisions quality is commonly invoked as a risk factor in supply chain manage­
ment and international sourcing literature, it is often combined with cost
According to Jensen and Pedersen (2011), the offshoring of considerations, such as. the cost of rework (cf. Kumar et al., 2010), and is
manufacturing flows to low-wage destinations, i.e. Asia and Central and not as often seen as affecting reputation. However, the CEO of the
Eastern Europe (CEE). In our case study the maritime equipment, plastic maritime equipment firm stated: ‘High quality is our number one priority,
components and furniture manufacturers had production operations in as information and rumours travel fast in the specific industry sector, we
these locations. Offshoring of IT and other types of administrative ser­ operate within … this can result in considerable reputational costs for us’.
vices flows to destinations with available talent pools, i.e. India (Jensen Thus, inadequate quality is a substantial risk, since a poor-quality
and Pedersen, 2011), as was the case in the finance institution in our component can have enormous consequences for the end-product. The
case study. Our findings suggest that for purely labour-intensive work notion that quality issues affect reputation was also recognized by two of
most firms are comfortable to offshore operations to third parties owing the furniture firms, especially the manufacturer of children’s furniture,
to cost, while for more critical activities they prefer onshoring/domestic who stated: ‘Quality mistakes can be dangerous for children’. Since assur­
outsourcing strategies over offshoring, despite the fact that the focal ing safety is of importance, the firm chose to leave China and switch to a
firms are located in one of the most expensive countries in the world in Hungarian supplier. While our examples are derived from aspects con­
terms of manufacturing costs. This is at odds with traditional location cerning quality risk, they heighten the fact that firms’ reputational risk is
literature, where cost-seeking strategies are dominant features in deci­ closely related to the partner country’s reputation, in line with Loo and
sion making. This does not mean that cost aspects were not considered Davies’ (2006) and Newburry’s (2012) observations. Overall, quality
during the firms’ location decisions, but they were not the main issues were recognized as a risk factor by seven of the eight firms.
consideration. For example, wages in China have tripled over the past Although quality considerations vary from one case firm to another, we
couple of years, which has led Western businesses to consider offshoring
to countries such as Bangladesh and Vietnam, as they are less expensive. Table 2
However, for our firms these locations are perceived as high-risk The Corruption perception index of the firms.
countries due to political instability and child labour praxis, and Case Previous CPI New CPI Difference
therefore unsuitable. In comparison, and because of the negative asso­ location 2019* location 2019*
ciation with such issues, which makes Western firms hesitate about
Beds Turkey 39 Poland 58 +19
relocating their businesses to some foreign countries, China has Chair India 41 Brazil 35 − 6
managed to establish strict laws targeting employee welfare and a strict Children China 41 Hungary 44 +3
ban on child labour. Such efforts help to enhance its reputation as a Shipbuilder Ukraine 30 Romania 44 +14
country good for business, as well as lowering the risk of reputational Plastic Vietnam 37 China 41 +4
Shiptech N/A N/A China 41 N/A
damage for foreign firms that conduct operations there. The plastic Payment N/A N/A China 41 N/A
component firm in our study stated that this was one of the reasons Maritime N/A N/A Norway 84 N/A
underpinning their decision to conduct operations and establish
*Notes.
buyer–supplier engagements in China. A manager at the firm said: ‘…we
1. The Corruption Perceptions Index (CPI) ranks 180 countries and territories by
follow up suppliers, check for child labour. We do not tolerate this’. This risk their perceived levels of public sector corruption, according to experts and
issue was also present for the children’s furniture and equipment firm, businesspeople.
which went further when explaining why they may exclude certain 2. The CPI uses a scale from 0 TO 100 where 100 is very clean and 0 is highly
countries: ‘…there is zero tolerance for child labour’. corrupt. Study referred to the CPI 2019, which is the latest report published in
Most of the case firms, with two exceptions, have offshored parts of January 2020.

6
B.B. Nujen et al.
argue that this is a very important issue for all the buying firms in this
study.
Our data indicate that country risk profiles based on managerial
perception as well as experience are used to exclude rather than include
locations. This finding is inconsistent with traditional international
sourcing literature, which proposes that experiences with foreign loca­
tions/suppliers lead firms to better handle their overseas operations
owing to learning outcomes (Manning et al., 2008; Contractor et al.,
2010). In our case studies, it had the opposite effect. As such, quality as a
risk aspect and the restriction of sourcing from certain countries to
prevent diverse risk shows that the COO effect comes to the fore as an
important location selection criterion.
The effects of COO were emphasized by three firms in particular – all
belonging to the maritime industry (i.e. the ship technology and
equipment suppliers and the shipbuilding firm). They described issues
such as lack of respect for intellectual property rights and copying, as
well as corruption, as strong concerns. For instance, the CEO of the ship
technology supplier described their experience in China: ‘Several of our
former subcontractors have today established their own competing business.
These have typically acquired enough knowledge to (copy) make their own
products. These competitors, on the other hand, do not have a global supply
chain and thus do not address the same customers as us.’ China has gained
access to technology and is gradually moving up the value chain. The
first step is mechanical production, but they are now moving towards
more advanced production. This factor is perceived as a reputational risk
issue for the firm. The other four firms were strongly concerned about
interruption in the global supply chain. They stated that their brand was
recognized as their main asset and they were not willing to jeopardize it.
If trouble happened in the firms’ global supply chains, customers would
associate this with brand issues. According to a manager in the chair
furniture firm: ‘…globalization and the internet can lead to uncover scandals
fast and widely. If there were to occur a problem with one of our suppliers
regarding the use of child labour or practices of animal cruelty, it would be a
scandal for us and result in substantial reputational damage.’ This is one of
the reasons why the firm employs multiple sourcing strategies for their
product. As such, in case of an adverse situation arising, they would
immediately switch suppliers. In compliance with Ellram et al. (2013),
these firms classify global supply chain interruption risk as a reputa­
tional risk issue (p.17). To mitigate such risks, however, two of the
furniture firms in our sample have established a system where suppliers
are obliged to comply with specific rules and regulations to fulfil quality
and CSR demands in their code of conduct. The same firms also
mentioned that they had experienced an increased external pressure
concerning, for instance, human rights and environmental issues. This is
difficult to disregard when deciding where to offshore as there is a
tendency in society today to pay more attention to a firm’s behaviour
than used to be the case.
For example, the potential risk of using child labour in Bangladesh
has led the firms in our study to exclude this country from their off­
shoring decisions. This is in line with Porter and Kramer’s (2006)
statement that stakeholders expect a firm to act ‘right’, and to stay away
from problems related to issues such as child labour, animal welfare and
pollution. An illustrative example worth mentioning is the decision
made by the chair furniture firm to source their leather from the
Americas instead of India and other countries in the region, because of
animal welfare concerns. The firm elaborated that even though cows are
considered holy in India, they were often transported in terrible condi­
tions over the border to be butchered. Knowing this, the firm chose to
exclude this region as an offshore location, rather than risking their
reputation and brand image, which are among their most important
marketing assets. One of the respondents acknowledged that in the past
this might not have been their highest priority: ‘previously CSR used to be
a piece of paper…now we have to walk the talk’. If such sourcing ar­
rangements became public, animal rights groups could drive a blocking
campaign towards the firm, which most probably would influence their
reputation negatively and in a worst-case scenario lead to consumer
7
Journal of Purchasing and Supply Management 27 (2021) 100682
boycotts, hampering future rents.
Another issue related to country reputation was political contro­
versy, noted by two case firms. For instance, the financial institution was
bound by governmental rules in Norway, which forced them to carefully
select both partner countries and suppliers. After all, security is highly
important in this type of industry. As stated by one manager: ‘Emerging
risks of offshoring for our services were related to data security, disruptions,
and communications issues’. In a similar vein, a manager in the bed
furniture firm said: ‘…despite knowing our competitors are benefiting from
low cost and skilled labour in Turkey, political issues make us reluctant to go
there’. Further, another manager stated ‘…we evaluate political and mar­
ket risks continuously.’ Interestingly however, the latter firm does not
have any systems in place for spotting such risks early on when
embarking on agreements or before the risks arise. The managers even
admitted that a lot of decisions to avoid risk are based on ‘gut feelings’
and control questions starting with ‘what if’.
One of the important aspects in sourcing relationships is contractual
risk, that is, the probability of facing losses due to an exchange partner’s
failure to fulfil contractual terms. Contracts are important because, as
Mwesiumo et al. (2018) note, they allow exchange partners to explicitly
stipulate roles and responsibilities to be performed, define outcomes to
be delivered, and state adaptive processes for handling unforeseeable
events. Out of the eight firms, only two acknowledged contractual risk as
present. For instance, the bed furniture firm indicated an increased focus
on contracts in general as late fees have become more common in the
industry. The firm works on streamlining their documentation to meet
an intensifying market. However, contracts may not be enough to
mitigate offshoring risk; the firm experienced issues when offshoring in
China (production and order mistakes) and subsequently had to reverse
the decision. To mitigate against such risks, the two firms had alterna­
tive ways to respond, either through certain criteria concerning the
supplier firm’s size or by initiating close long-term relationships with
their suppliers. All case firms except for the chair furniture firm stated
that close and well-established supplier relationships are essential when
sourcing from external parties operating in foreign countries. This was
an aspect that provided several respondents with a ‘feeling of security’.
Hence, when looking into partners for offshoring, supplier relationships
were not considered as a high-risk consideration; rather, it was a way for
the firms to mitigate risk in offshoring settings. Among other risk miti­
gation methods, the chair furniture firm enters agreements with what
they call ‘safe’ suppliers. One frequently used tool is ISO certification.
Such certificates simplify contracts, as certain guidelines already need to
be followed and requirements met by the supplier, thus mitigating risk
in offshoring operations irrespective of location. In this firm’s case, all
their suppliers must be certified, otherwise no partnership is entered
into.
The qualitative analysis of the findings provides valuable insights
into reputational risk as a factor slightly different from factors reported
within international sourcing, including the CSR and COO frameworks.
The data revealed three dimensions in reputational risk that appear to
come into play in offshoring location decisions. Consistent with previous
research, reputation as a construct is intangible and based on individual
perception. First, reputational risk is based on managers previous ex­
periences with countries, which influences a firm’s propensity to engage
with certain offshoring locations over others. However, in contrast to
this literature, our findings indicate that decision makers reputational
risk assessment in offshoring is also affected by industrial members and
buyers’ perceptions about suppliers in host countries, without the focal
firm having any first-hand experience. Second, societal opinions and
formal institutional forces regarding unethical praxis is emphasized as
aspects that are critical risk considerations in offshoring. The findings
show firms often calculated such risks with traditional risk management
tools (e.g., code of conduct and CSR strategies) when deciding where to
relocate and with whom to do business with. This indicates that a
location decision is based on many different aspects of a host country’s
image, some of which seem to conflict with the literature. Third, our
B.B. Nujen et al.
findings indicate that, although heightened as an important firm repu­
tational factor for buying firms located in high-cost countries, product
quality does not seem to impact the location choice in an immediate
way. Instead reputational risks seem to influence buying firms away
from potential qualified suppliers because of attributes closely related to
COO effects. The emphasis put on a host country’s reputation, accords
with our research aim as it sought to understand reputational risk in
firms’ offshore location decisions, as will be elaborated next.
5. Research propositions
The theoretical frame of reference and our eight cases provide in­
sights associated with reputational risks in offshoring decisions. Based
on these insights, a conceptual framework is proposed to delineate
reputational risk-based factors that can influence location choices by
firms operating in a high-cost environment when targeting low-wage
locations. Fig. 1 presents the framework and explain the relationship
between the proposed propositions below.
Based on our analysis, we define country reputation risk as the
probability of being associated with a negative phenomenon related to a
particular country that stakeholders are concerned about and therefore
may lead to an adverse impact on a firm’s reputation. Subsequently, we
argue that country reputation risk, along with other factors, has a sig­
nificant impact on firms’ relocation strategies. However, it appears that
most of the firms source from locations that are perceived as ‘safe’ by
their managers. Thus, firms are actively mitigating offshoring risk(s) by
excluding certain countries when location decisions are being made. A
question arises whether if it is the managerial perception or previous
experience that shapes a country’s ‘risk profile’ rather than risk evalu­
ations based on established frameworks and objective facts. Hence, the
following proposition is suggested:
P1. Managers beliefs, assumptions and perceptions are elements that
Fig. 1. A conceptual framework.
8
Journal of Purchasing and Supply Management 27 (2021) 100682
influence firms’ assessment of certain countries and are ultimately translated
into their offshoring decisions.
While Petersen and Lemke (2015) identified eight dimensions of the
reputation concept in general, the present study focuses on the role of
reputation in offshore location decisions and identifies country reputa­
tion risk as a second order construct formed by three factors. Through
conceptual aggregation, we identify the three factors as unethical
practices, institutional weaknesses and quality concerns. To begin with,
we operationalize unethical practices as phenomena that fall outside of
what is considered morally right or proper. The incidence of such
practices is therefore likely to trigger negative reactions from a firm’s
stakeholders. For instance, potential scandals in connection with
neglecting certain issues, such as manufacturing footprints and violation
of animal rights, were raised by half of our sample, which indicates a
heightened importance of acting ethically and responsibly. Thus, we
posit the following proposition:
P2. Perceived high rate of unethical practices has a strong effect on a
country’s perceived reputational risk and location choice.
Further, our analysis indicates that a country’s institutional weak­
nesses significantly contributes to the formation of a country’s reputa­
tional risk. Following Brinks et al. (2019), we operationalize a country’s
institutional weakness as comprising of at least one of the following
conditions: insignificance, which is a condition whereby rules are
complied with but do not affect the way actors behave; non-compliance,
which is a condition whereby state elites either choose not to enforce the
rules or fail to gain societal cooperation with them; and instability,
which is a condition whereby the rules are changed at an unusually high
rate. Our analysis suggests that when making location decisions, firms
consider institutional weakness as one of the key elements that form a
country’s reputation. Hence, we posit the following proposition:
P3. Operating in a country that is characterized by institutional weak­
nesses is likely to compromise the legitimacy of a firm, hence such weaknesses
B.B. Nujen et al.
increase perceived reputational risks in location decisions.
Additionally, the findings indicate that reputational risk for a firm is
also closely linked to activities surrounding their products and services
(such as which country to operate in or do business within and why, who
to engage with in a business relationship or why not to engage), rather
than the actual product itself. We therefore operationalize a country’s
quality concerns as managers’ perception of a particular country being
associated with lower production standards. As noted earlier, it is
evident that all our case firms put considerable emphasis on quality is­
sues. Consequently, we propose that:
P4. Quality concerns associated with a particular country are significant
elements constituting a country’s reputational risk.
6. Discussion
This paper has explored how reputational risk affect firm decisions to
relocate business operations or engage in buyer-supplier relationships in
foreign countries. To the best of our knowledge, this is one of the few
studies to explore the role of reputational risk in offshore location
choices. The study conceptualizes reputational risk from an offshoring
decision perspective at firm level. Thus, we partly address a research gap
regarding insights about how reputational risk-based decisions affect
offshoring decisions (cf. Busse et al., 2017). The study offers insights that
have theoretical and actionable managerial implications, as discussed
below.
6.1. Contribution to research
Regarding theoretical contribution, our analysis reveals a network of
variables that represent a mechanism through which reputational risk
determines offshore location choice. First, the findings suggest that
reputational risk has a considerable effect on a firm’s propensity to
engage with specific offshoring locations over others. However, this
effect is moderated by the managerial perception of such risks. It means
that the relationship between reputational risk and offshore location
choice is not straight-forward. In other words, it is contingent upon
managers’ interpretation of the critical elements of the business envi­
ronment in a particular country. The study contributes by emphasizing
the role of ‘managerial inputs’, which are often neglected within inter­
national sourcing literature (Foss et al., 2010). More so, our analysis
suggests that reputational risk is a higher-order construct comprised of
three lower-order constructs: unethical practices, institutional weak­
ness, and quality concerns. These factors are considered as crucial di­
mensions of reputational risk. Clearly, our findings distinguish
reputational risk from the CSR framework, which has often been
considered a higher-order construct and applied when investigating
similar research issues. The difference is that the dimensions of repu­
tational risk identified in this study transcend beyond the governance,
ethics, environmental and social spheres of CSR as identified by Lemke
and Petersen (2013). In addition to capturing these four spheres
(through the unethical practices and institutional weaknesses di­
mensions), our findings suggest quality concerns also account for
country reputational risk.
As noted in Section 2.3, reputation is a fluid phenomenon based on
individual and societal perception, contributing to its complexity.
Hence, identifying its dimensions is essential because it provides a ho­
listic representation of such a complex phenomenon and allows re­
searchers to match broad predictors with broad outcomes. Furthermore,
the study contributes by incorporating the COO effect that has only
recently started to emerge in supply chain journals where it is mostly
discussed from a sustainability perspective. Most studies on the COO
effect focus on B2C contexts, especially from an international marketing
perspective (cf. Cedrola et al., 2016) and have been centred on sourcing
from developed countries (cf. Maltz et al., 2011). Our analysis reveals
that the COO effect reflects country reputational risk. Thus, it should
include country ‘image’, institutional weaknesses (such as political
9
Journal of Purchasing and Supply Management 27 (2021) 100682
uncertainties) and attitudes to patent protections. Overall, our findings
can serve as a foundation for further research as they provide a holistic
understanding of how firms reflect on reputational risk concerning
location decisions and supplier engagement. It is important to note that
our ambition is not to disregard the importance of other risk factors such
as information asymmetries, currency fluctuations and delivery preci­
sion, among others (e.g., Ellram et al., 2013; Busse et al., 2017; Di Mauro
et al., 2018) that need to be considered when supplier and location
decisions are to be made. Instead, we sought a more balanced and
complementary account of firms’ reputational risk-based decisions
regarding the offshoring location choice.
While hidden costs and contractual risk considerations have received
tremendous attention, recently followed by disruption risks such as
natural calamities and the current COVID-19 pandemic, reputational
risk has primarily been downplayed in international sourcing research.
However, the emergent emphasis toward more ethicality in global
supply chains put forward by diverse stakeholders, seem to have led to
the development of firms’ location strategies to diverge from a ‘low-
wage country-towards a country reputational decision’. Hence, the off­
shoring location choice is a critical decision with implications not only
for a firm’s direct financial performance but also for their industry
partners and buyers, given the risk of detrimental reputability.
6.2. Contribution to management practice
Regarding managerial implications, our results emphasize the crit­
ical role of managerial perception in framing and interpreting country
reputational risk and selecting a specific location. The conceptual
framework, accompanied by the four propositions developed, can help
practitioners with a managerial view on reputational risks. This is crit­
ical because reputational risk is hard to calculate or evaluate and often
falls outside traditional risk management matrixes. Accordingly, it can
help firms develop new and better evaluation matrixes for offshoring
decisions regarding both location and supplier selection processes, thus
bypassing or at least decreasing biased decisions (i.e. managerial
perception). Therefore, accurate interpretation of reputational risk as­
pects is particularly important for firms, as it will enable them to make
optimal decisions. To that end, firms must have adequate systems for
acquiring accurate, relevant and timely data on the critical aspects of
reputational risk. Thus, precise scanning of the business environment in
countries considered for relocation is imperative.
Moreover, our findings suggest that firms are pragmatic in the sense
that they consider the relative importance of the reputational risk di­
mensions when making location decisions. The relative importance
appears to be mainly determined by the relevance of each of the di­
mensions of country reputational risk to a firm’s industry. Thus, while it
is desirable to minimize all forms of reputational risks, it appears that
managers are sometimes compelled to compromise one dimension and
optimize another that they perceive to be the most relevant. However, as
firms increasingly must address concerns of multiple stakeholders, we
argue that such a relativistic approach might seem to be opportunistic
and hence, attract a backlash from stakeholders. Accordingly, we
recommend that managers should consider minimizing all dimensions of
reputational risk.
7. Conclusion
This study aimed at determining how reputational risk influences the
choice of offshore location. The study applied a qualitative research
design to explore reputational risk as a factor in offshore location de­
cisions targeting low-wage countries. Specifically, it sought to under­
stand the impact of reputational risk from the managers’ perspective in
firms located in high-cost countries. The qualitative analysis of the data
has provided insights into reputational risk that are slightly different
from those reported within international sourcing, including the CSR
and COO frameworks. Although our findings are interesting, they should
B.B. Nujen et al.
be interpreted in the context of the limits inherent in qualitative
research, which sets the direction for future studies.
First, our sample is limited to eight Norwegian case firms; therefore,
one should be cautious in generalizing the findings. However, as more
and more countries commit themselves to the UNs sustainability stan­
dards, this indicates that firms will be held more accountable when
involved with child labour, modern slavery or corruption even if not
directly involved. This indicates that reputational risks might impact
firms’ offshore location decisions in other Western countries and not just
those with strict regulations alike Norway. We encourage future studies
to include a larger sample of firms, preferably from other countries.
Second, our findings are based on perceptions and understandings of
reputational risk aspects when targeting low-wage countries, which
might restrict external validity. Thus, we invite future studies to test our
propositions from the perspective of firms serving Western buyers. Such
research can complement the findings of this study and offer a more
nuanced and holistic understanding of reputational risks in location
decisions. Third, although quality and cost aspects are heightened, the
complexity and degree of criticality of products are not accentuated.
Therefore, caution should also be exercised in interpreting and gener­
alizing our findings. That said, we attempted to include a wide range of
firms encompassing diverse characteristics regarding size, production
methods, markets and portfolios, and hence experiences with offshoring
strategies in multiple low-wage countries. Finally, we encourage others
to continue research on firms’ reputational risks, as focus on both social
and environmental factors is at the centre of our society today. It is an
element that can no longer be neglected by firms, regardless of what
types of strategies are being adopted. Pursuing this thought further, our
assumptions might apply also to firms in low-wage locations, which
historically have competed by providing foreign investors with favour­
able conditions such as low labour cost- and ownership advantages, but
in the future must encounter reputational risk aspects to compete in
location attractiveness.
Funding
This research did not receive any specific grant from funding
agencies in the public, commercial, or not-for-profit sectors.
Authors contribution
Bella B. Nujen: Conceptualization, Methodology, Validation, Inves­
tigation, Formal Analysis, Data curation, Writing -Original Draft,
Writing – Review and Editing, Visualization
Hans Solli-Sæther: Conceptualization, Methodology, Validation,
Investigation, Data curation, Writing – Review and Editing
Deodat Mwesiumo: Methodology, Validation, Visualization, Writing
– Review and Editing
Bianca Hammer: Conceptualization, Methodology, Validation,
Investigation, Formal Analysis, Data curation, Writing -Original Draft
Declaration of competing interest
This research did not receive any specific grant from funding
agencies in the public, commercial, or not-for-profit sectors. There is no
conflict of interest.
Appendix A. Supplementary data
Supplementary data to this article can be found online at https://doi.
org/10.1016/j.pursup.2021.100682.
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Journal of Purchasing and Supply Management 27 (2021) 100682
Appendix 1. Case profiles
Case 1: Maritime equipment supplier (Maritime)
The firm is a privately owned single-source supplier that manufac­
tures and supplies custom made thrusters, serving offshore vessel and
cruise ship companies. Located in Norway since 1912, they are repre­
sented by service agents and 28 sales representatives worldwide. They
apply a conscious strategy as specialists in a niche market and the main
customer pool is represented by firms operating in high-cost countries.
The firm has a vertically integrated value chain in order to secure
quality, lead-times (long lead-times requires higher degree of manage­
ment of the value chain), and as means to counteract loss of compe­
tencies. They are pro local-production and have a long-term vision for
keeping production within domestic boundaries, which reflect their
motto; “Homemade is well made”.
Case 2: Ship technology supplier(Shiptech)
The ship technology supplier has a world-leading range of capabil­
ities in the maritime market, encompassing the design, supply and
support of power and propulsion systems. They are leaders in the inte­
gration of technologically complex, mission critical systems for offshore
oil and gas, merchant and naval vessels. The firm decided to enter the
Chinese market with a fully owned subsidiary to participate in the
competition.
The firm has full control over the operation and their technology.
The production plant was established some years ago and delivers ship
equipment on a project base to Chinese shipyards. In the first place, the
company copied the old production line from western regions. Then, the
production processes were improved, and they fully renovate the pro­
duction after lean principles. Today, the company share best practices
and standardize globally.
Case 3: Shipbuilder
The firm is one of the largest Norwegian-owned shipbuilders, who
delivers vessels worldwide based on an ETO manufacturing strategy.
‘Shipbuilder’ is part of the unique Norwegian offshore cluster. Due to
cost considerations in late 1990s they chose to embark on offshoring,
particularly to external locations in Poland. From sourcing out of steel
production for the construction of hulls, which later expanded to also
include other activities of the ship constructing process like engineering.
Today they operate with a sourcing approach encompassing third-
party independent suppliers and a captive JV center, most of them
located in Central and Eastern Europe. Recently, Shipbuilder also chose
to repatriate some of their sourced-out production through backshoring.
The strategy has been successful in terms of delivery lead times, and they
are now more aware of the advantages related to in house knowledge
and innovative abilities.
Case 4: Plastic component supplier (Plastic)
‘Plastic’ is a small family-owned firm founded in 1942, who started
with production of plastic ball-point pens, which subsequently has
developed into producing plastic injection molded products in a wide
range of sizes (from 0,1 g to 120 kg). The firm is a huge supplier of
aquaculture components in the Scandinavian market but is also serving
the domestic offshore sector. Due to high labor costs in Norway, the firm
chose to embrace an international sourcing strategy. The firm has a
philosophy of not investing in foreign acquisitions, instead they are
focusing on ‘relational contracting’ and have therefore opted for an
offshore outsourcing strategy. China was chosen as production location,
while for engineering operations Portugal was chosen.
As their products are rather expensive to produce, the most critical
parts are being manufactured in-house, robotization and automatization
B.B. Nujen et al.
has become critical for the firm. Today, they have more robots than
employees in their production, which has made them less expensive
than some of their Chinese competitors.
Case 5: Financial services (Payment)
The client company is a leading Northern European supplier of
electronic payment and information solutions. This client company
operates in five countries (Denmark, Norway, Sweden, Finland, and
Estonia). The client company offshored part of its application develop­
ment and maintenance to a global service supplier based in India. The
client company continuously considered functions and systems for
offshore outsourcing, in whole or in part, which was not part of their
core business.
As a part of the firm’s growth strategy the client company was buying
services offshore with the same quality and at lower cost than the local
consulting market. Their offshoring included, for example, sourcing of
application maintenance, application development, production support
and testing. The aim was to increase the offshore rate, and hence
resource flexibility and cost reduction.
Case 6: Furniture firm (Beds)
‘Beds’ is a small Norwegian firm which has a history of being a target
firm during multiple acquisitions, however, it has been locally owned
since 2017. The firm has a quality-focused strategy instead of high
volume, thus, they do not produce in bulks with substantial stocks,
instead they deploy an assembly to order strategy. Despite their size they
are profitable and have a world known brand also beyond domestic
boundaries. However, due to cost increases and capacity issues, the firm
had to engage in onshore outsourcing and offshoring outsourcing
arrangements.
For Beds, it is important that external suppliers have a common
understanding of market needs as well as consensus regarding
achievements. Because of earlier ill-fated experiences in China, their
location strategy is focused toward destinations in Europe, where single
sourcing contracts are entered backed-up with close supplier
relationships.
Case 7: Furniture firm (Chairs)
‘Chairs’ is the main furniture producer in Scandinavia and one of
Europe’s largest furniture manufacturer. Their core activities include
developing, producing and innovate for grater quality and comfort, with
high degree of refinement. Chair have competitive advantages due to
highly automated production technology combined with a successful
vertically integrated value chain.
While most part of Chairs manufacturing operations are conducted
in-house and onsite, their sourcing strategy is indeed wide; encom­
passing outsourcing at the home location, offshore outsourcing at Eu­
ropean locations and, both captive and offshore outsourcing models,
where independent third-party suppliers perform operations at low-
wage locations faraway. The main reason for their ability to keep pro­
duction in-house is because they compete on quality rather than price,
and their great knowledge in brand building.
Case 8: Manufacturer of children’s furniture (Children)
It is the brand that is ‘Childs’ main asset; core activities that relate
directly to the brand are thus kept in-house. The firm differentiates itself
from others; especially when it comes to functionality, ergonomics and
comfort. Pride is taken in the fact that all products are designed with the
child in mind.
Their manufacturing strategy is very interesting, as all their pro­
duction is offshore outsourced. They apply single sourcing, with a few
exceptions such as the production of their most popular product and
11
Journal of Purchasing and Supply Management 27 (2021) 100682
textile sourcing.
Despite extensive offshore outsourcing, the firm recognize the de­
mand for professional integrity to ensure that no negative side effects for
customers emerge. While lead-time and delivery precisions are impor­
tant for Child, quality and social compliance are considered as more
strategically important for their location and supplier decisions.
Appendix 2. Semi-structured interview guide
Authors note; The interviews all start with general introduction
questions covering general information about the firm and the in­
terviewees. We portray typical prompts that we applied when needed.
Additional questions were added when insufficient information was
given, and follow-up questions were addressed if relevant in the specific
setting.
General: The interviews all start with general introduction questions
covering general information about the firm; size, product/services,
geographical presence and the interviewees roles and backgrounds.
Section 1 – Motivation for offshoring
1. Please explain the main motivations for offshoring
2. Explain the firm’s general philosophy in developing this business
strategy
3. Please describe the offshoring relationship
Section 2 – Location choice
4. Which locations/countries does the firm source from? What are the
reasons?
5. Have there been any changes in location and/or suppliers the last
five years? If yes, please elaborate
6. Are there any favourable or unfavorable impressions of certain re­
gions or countries?
7. How do you evaluate/decide host country attributes, when choosing
between different low-wage locations?
8. What has been the greatest difficulty in carrying out changes in
relocation?
9. What implicit tradeoffs are made relative to sustainability aspects
and sourcing decisions?
Section 3 – Risk
10. How does the firm identify risk related to offshoring?
11. Do you analyze the potential of losses and the probability of
adverse events?
12. Which are the most crucial risk factors in offshoring for a firm?
13. Has the firm excluded possible locations due to risk factors?
If yes, please elaborate on which and why?
14. To what extent are these decisions influenced by earlier
experience?
(on an individual/firm basis).
15. Are you focusing on specific ways to protect yourself from
reputational damage?
If yes, please try to provide examples on how.
16. Do you employ any specific strategies for your suppliers to follow
rules applied to your products/industry?
17. Can you describe if risk aspects related to locations and offshoring
has changed the last five years? Please elaborate
B.B. Nujen et al. Journal of Purchasing and Supply Management 27 (2021) 100682

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