Offshoring
Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state governments may also employ offshoring.[1] More recently, technical and administrative services have been offshored.
This article is about the business process involving a single company. For offshore outsourcing, see Outsourcing. For other uses, see Offshore (disambiguation).
Offshoring neither implies nor precludes involving a different company to be responsible for a business process. Therefore, offshoring should not be confused with outsourcing which does imply one company relying on another. In practice, the concepts can be intertwined, i.e offshore outsourcing, and can be individually or jointly, partially or completely reversed, as described by terms such as reshoring, inshoring, and insourcing.
In-house offshoring is when the offshored work is done by means of an internal (captive) delivery model.[2] [3]
Imported services from subsidiaries or other closely related suppliers are included, whereas intermediate goods, such as partially completed
cars or computers, may not be.[4]
Variations[edit]
Offshore outsourcing[edit]
Subcontracting in the same country would be outsourcing, but not offshoring. A company moving an internal business unit from one country to another would be offshoring or physical restructuring, but not outsourcing. A company subcontracting a business unit to a different company in another country would be both outsourcing and offshoring, offshore outsourcing.
Types of offshore outsourcing include:
Practices[edit]
Destinations[edit]
After its accession to the World Trade Organization (WTO) in 2001, the People's Republic of China emerged as a prominent destination for production offshoring. Another focus area has been the software industry as part of global software development and developing global information systems. After technical progress in telecommunications improved the possibilities of trade in services, India became one prominent destination for such offshoring, though many parts of the world are now emerging as offshore destinations.
Theory[edit]
Effects of factor of production mobility[edit]
According to classical economics, the three factors of production are land, labor, and capital. Offshoring relies heavily on the mobility of labor and capital; land has little or no mobility potential.
In microeconomics, working capital funds the initial costs of offshoring. If the state heavily regulates how a corporation can spend its working capital, it will not be able to offshore its operations. For the same reason the macroeconomy must be free for offshoring to succeed.
Computers and the Internet made work in the services industry electronically portable. Most theories that argue offshoring eventually benefits domestic workers assume that those workers will be able to obtain new jobs, even if by accepting lower salaries or by retraining themselves in a new field. Foreign workers benefit from new jobs and higher wages when the work moves to them.
Labor scholars argue that global labor arbitrage leads to unethical practices, connected to exploitation of workers, eroding work conditions and decreasing job security.[61]