Reshore or Offshore Outsourcing? The Role of Brand Encroachment

DOI number:10.1109/TEM.2026.3689247

Journal:IEEE Transactions on Engineering Management

Key Words:Brand encroachment, brand influence, offshore outsourcing, reshore outsourcing, tariff.

Abstract:Amid rising trade policy uncertainty and the rapid expansion of digital cross-border platforms, contract manufacturers in low-labor-cost countries (LCMs) are transitioning from the "world's factory" to global brand competitors.This shift is reshaping the offshore and reshore outsourcing decisions of global brand owners (OBs). We develop a game-theoretic model of a cross-border supply chain where an LCM decides whether to engage in brand encroachment, while an OB chooses between offshore and reshore outsourcing. Our analysis yields several key insights. First, when the LCM engages in cross-border brand encroachment, the tariff may fail to induce reshore outsourcing when the LCM lowers its wholesale prices due to the profit compensation effect. Second, when the labor cost advantage is small, encroachment becomes a dominant strategy and is further strengthened by the higher tariff. In contrast, when the labor cost advantage is moderate (or high), the LCM's encroachment decision reflects a tradeoff among the suppression effect (or market erosion effect), the cost reduction effect, and the gains from self-branding. Finally, when the LCM faces a high unit material cost and a limited labor cost advantage, the strategy of encroachment with reshore outsourcing can benefit the LCM, the OB, and consumers. The robustness of the main findings is confirmed across various extended cases, including changes in the sequence of events, consumer preference, price competition, and the LCM's brand influence over OB.

Co-author:Xuemei Lai

First Author:Li Liu

Indexed by:SCI

Correspondence Author:Qin Zhou,Wei Geng

Discipline:Management Science

Document Type:J

Volume:73

Page Number:3251-3263

Translation or Not:no

Date of Publication:2026-04-30

Included Journals:SCI

Links to published journals:https://ieeexplore.ieee.org/document/11501749