Offshoring and Motivation
– Lower cost and increased corporate profitability are often the motivation for offshoring.
– Access to qualified personnel abroad, especially in technical professions, is another incentive.
– Offshoring can decrease the time to market for products and services.
– Jobs are added in the destination country, while subtracted from the higher-cost labor country.
– Europe experienced less offshoring than the United States due to higher costs and cultural barriers.
– China emerged as a prominent destination for production offshoring after joining the World Trade Organization.
– India became a prominent destination for offshoring in the software industry and global information systems.
– Many parts of the world are now emerging as offshore destinations for various industries.
– Technical progress in telecommunications expanded the possibilities for trade in services.
– Offshoring destinations are not limited to specific regions or countries.
Types of Offshoring
– Offshoring is the movement of a business process from one country to another within the same company.
– Outsourcing is the movement of internal business processes to an external organization.
– Nearshoring refers to relocating business processes to lower-cost foreign locations in close proximity.
– Inshoring involves picking services within a country.
– Bestshoring or rightshoring is the selection of the best offshore location based on various criteria.
– Production offshoring involves relocating physical manufacturing processes to lower-cost destinations.
– NAFTA facilitated the shift of production facilities from the US to Mexico.
– China became a major destination for production offshoring due to cheap prices, low wages, and favorable conditions for new companies.
– Offshoring of IT-enabled services grew with the expansion of telecommunication and internet infrastructure.
– Job movement in this sector includes both offshoring to subsidiaries and outsourcing to external companies.
– Offshore outsourcing refers to the movement of IT-enabled services to external companies.
– Offshoring research and development (R&D) is challenging due to the higher skill set required.
– Product design and innovation often require a higher level of expertise.
– Cheap labor is not associated with the complex R&D process.
– Offshoring R&D may not provide the desired cost savings.
– Companies may choose to keep R&D operations within their home country for better control and expertise.
Government Response and Success Stories
– President Obama’s 2011 SelectUSA program promoted U.S. investment.
– The program connected companies with resources on federal, state, and local levels.
– President Obama called for investing in America at the White House Insourcing American Jobs Forum.
– The government facilitated partnerships between federal and state agencies.
– The program aimed to create jobs and boost the economy.
– Advances in 3D printing technologies benefited manufacturers.
– Companies like Starbucks saved jobs by rescuing struggling businesses.
– Successful reshoring efforts resulted in the creation of hundreds or thousands of jobs.
– Companies found success by bringing manufacturing back to the United States.
– Reshoring initiatives contributed to job reinstatement and economic growth.
Impact of Offshoring
– Companies benefit from accessibility to labor resources across the world.
– Business models like Remote In-Sourcing allow companies to tap into resources abroad without compromising product quality.
– New categories of work, such as call centers and computer programming, are being offshored.
– Offshoring enables tasks like reading medical data and income tax preparation to be done remotely.
– Offshoring provides opportunities for companies to access a global talent pool.
– Ireland’s low corporate tax rates attracted US companies to offshore software, electronic, and pharmaceutical intellectual property.
– Offshoring to Ireland contributed to its transformation from one of the poorest EU countries to one of the richest.
– The offshoring of high-tech industries played a significant role in Ireland’s economic growth.
– Ireland’s success in attracting offshored jobs highlights the impact of favorable tax policies.
– Offshoring to Ireland has led to the development of a thriving high-tech sector.
– The implementation of NAFTA in 1994 accelerated the physical restructuring of industries.
– The plan to create free trade areas, like the Free Trade Area of the Americas, has faced challenges.
– The offshoring of skilled work from the US increased after the implementation of NAFTA.
– Concerns about job loss due to offshoring grew as a result of the increased offshoring of knowledge work.
– NAFTA has had a significant impact on the offshoring of jobs within North America.
Offshore Outsourcing and Criteria
– Information technology outsourcing (ITO) involves outsourcing technology-related tasks like computer programming.
– Business process outsourcing (BPO) entails outsourcing operational functions to third-party service providers.
– Offshore software development is a specific type of outsourcing focused on software development.
– Knowledge process outsourcing (KPO) requires advanced technical skills and expertise.
– Customer support outsourcing (CSO) involves delegating customer service functions to offshore call centers or service providers.
– Significant wage differences between the original and offshore countries are a key criterion for offshoring.
– Jobs that can be done remotely and transmitted over the internet are suitable for offshoring.
– The work being offshored should be repeatable to ensure efficiency.
– Offshoring is more feasible when there is a significant cost advantage in the offshore country.
– The criteria for offshoring depend on factors such as wage differentials and the nature of the work.Sources: https://en.wikipedia.org/wiki/Re-shoring