Strategic analysis of offshore migration of polluting firms and suppliers: an option value perspective

Abstract

Purpose

This paper, being complementary to existing perspectives, aims to examine the behaviors and the strategies of production migration of polluting firms from an economic point of view under appropriate decision conditions in terms of uncertain influence of supply chain support and green technology progress.

Design/methodology/approach

Strategic alternatives are investigated by using option pricing tools to examine the impact of various characteristics of green technology development and supply chain relations on the timing of the decision.

Findings

The theoretical and empirical results show that a polluting firm should not consider the option of relocating to offshore countries if uncertainty has been anticipated. It is suggested that, by facing green technology development uncertainty, a firm should be refrained from relocating production abroad if technology develops and offshore cost advantage disappears soon. On the other hand, a pre‐emptive migration strategy is preferable when the green technology is anticipated to be delayed.

Practical implications

A polluting firm in a supply chain faces challenges of uncertainty depending on whether it decides to produce domestically or to relocate internationally. The analysis conveys a concept that polluting firms can be more profitable by promoting clean production technology, instead of relocating to offshore or so called pollution havens.

Originality/value

The paper contributes to the existing literature on the evaluation of offshore migration option values by taking extra consideration of uncertainty in the supply chain cost, green technology progress and complementing to studies in a moral perspective.

Citation

Lee, T.(J). and Chen, Y.J. (2012), "Strategic analysis of offshore migration of polluting firms and suppliers: an option value perspective", Supply Chain Management, Vol. 17 No. 6, pp. 666-674. https://doi.org/10.1108/13598541211269265