Digital transformation and the offshore outsourcing behavior of manufacturing MNEs

This study analyzes the impact of digital transformation on manufacturing multinational enterprises’ (MNEs) offshore outsourcing intensity. We distinguish two independent categories of digital transformation: information-centric (IDT) and manufacturing-centric (MDT). Applying transaction costs economics (TCE), we argue that IDT decreases offshore outsourcing intensity, while MDT increases it. These effects arise from their respective influences on the specificity of an MNE’s core value-adding transactional assets, the frequency and variability of its demand for complementary inputs, and uncertainty in market transactions. Additionally, we identify internal and external factors that provide regulatory and relational safeguards for market transactions, thereby moderating these effects. We empirically test our hypotheses using 3271 firm-year observations from 492 Korean manufacturing MNEs between 2011 and 2021. Our findings offer strong support for our hypotheses, underscoring TCE’s relevance to understanding MNEs’ global supply chain governance under digital transformation.