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

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