Edges and Shortcomings of Offshoring

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Introduction

Background information

For the first time, the practice of offshoring began to be applied in the 60s of the 20th century by European and American companies; however, the term itself appeared only in the late 70s. It is important to note that the phenomenon of offshoring involves the separation of manufacturing activity and the placement of these segments in remote locations (Radło, 2016). Such business practice is primarily characteristic of the economies of developed countries when they act as a parent, and the recipients are developing countries.

Connecting information

The study of such business activities as production offshoring is most relevant today because of such various international events as the China-United States trade war, Brexit, China’s industrial involvement in Africa and increasing migration.

Thesis Statement

The purpose of this work is to study both the positive and negative aspects of a company moving its production operations to a developing country.

Scope

Areas of the paper include social, economic, and political assessment of benefits and drawbacks of company relocation with examples.

The Positive and Negative Aspects of Production Offshoring from a Social Perspective

Point 1: Large number of potential and current professional workforces with good knowledge of the languages of international communication.	Supporting Evidence from source (with citation): According to Sharma and Nagendra (2016), “there is a huge scope of generating skilled workforce in the country and utilize the ‘demographic dividend’” in India (p. 1).	Example/Evaluation: About one hundred and thirty residents of India can speak English, which makes this language the second spoken language in the country (Omidvar & Ravindranath, 2017).
Point 2: Offshoring involves a dialogue between representatives of different cultures that inevitably creates cultural barriers and issues.	Supporting Evidence from source (with citation): According to Lázár (2017), “it is always a big challenge for all types of companies anywhere in the world to survive in the globalised and accelerated world” (p. 91)	Example/Evaluation: During the contacts between American and Chinese business people, there was often a contrast between the Americans’ openness of speech and the modesty of the Chinese, which sometimes gave rise to misunderstanding (Street & Matelski, 2019).

The Positive and Negative Aspects of Production Offshoring from an Economic Perspective

Point 1:The primary advantage from an economic perspective is low labour costs.	Supporting Evidence from source (with citation): This factor is particularly relevant for production offshoring because labour costs are directly related to operating expenses (Ketokivi, Turkulainen, Seppälä, Rouvinen, & Ali-Yrkkö, 2017).	Example/Evaluation:Indonesia and India are ranked first in the offshore rankings due to the lowest labour costs (Pappas & Chalvatzis, 2017).
Point 2: Tax laws and utilities in developing countries may be less profitable than in developed countries.	Supporting Evidence from source (with citation): Electricity prices in developing countries are often very high due to industrial backwardness (International Energy Agency, 2019).	Example/Evaluation: Caribbean electricity taxes exceed even European and American prices (McIntyre et al., 2016).

The Positive and Negative Aspects of Production Offshoring from a Political Perspective

Point 1: The main profit from manufactured products is returned to the parent country.	Supporting Evidence from source (with citation): Lower costs for salaries, utilities and exemptions for foreign companies constitute cost savings due to which large profits flow into the parent country’s GDP (Musteen, 2016).	Example/Evaluation: Financial and reputation success of many international companies is provided by a competent offshoring policy which implies the distribution of welfare among local employees and sponsors (Capuano, Egger, Koch, & Schmerer, 2020).
Point 2: Moving industries to developing countries takes jobs away from residents and creates population discontent.	Supporting Evidence from source (with citation): High labour force unemployment leads to a decrease in the growth rate of the parent country’s economy and further social discontent (Liton, 2016).	Example/Evaluation: The high offshoring activity of US companies and the subsequent increase in unemployment led to the introduction of restrictions by the government (Athukorala, 2017).

Conclusion

Summary of key points (linked to thesis statement / scope): This paper explores edges and shortcomings of offshoring from 3 primary perspectives. Social, economic and political benefits are skilled foreign workers, low labour expenses and returning increased profits. Among the shortcomings were highlighted cultural barriers, high utilities and loss of jobs for locals.

Predictions/recommendations/suggestions (based on key points): The distribution of the vast profits on the development of the departments of international relations, the infrastructure of developing countries and social benefits for layoffs can solve the current problems of offshoring policy.

Reference List

Athukorala, P. C. (2017). China’s evolving role in global production networks: Implications for Trump’s trade war. In L. Song, R. Garnaut, C. Fang, & L. Johnston (Eds.), China’s new sources of economic growth: Human capital, innovation and technological change, vol. 2, (pp. 363-388). Canberra, Australia: ANU Press.

Capuano, S., Egger, H., Koch, M., & Schmerer, H. J. (2020). Offshoring and firm overlap: Welfare effects with non‐sharp selection into offshoring. Review of International Economics, 28(1), 138-167.

International Energy Agency. (2019). World energy prices 2019. Web.

Ketokivi, M., Turkulainen, V., Seppälä, T., Rouvinen, P., & Ali-Yrkkö, J. (2017). Why locate manufacturing in a high-cost country? A case study of 35 production location decisions. Journal of Operations Management, 49, 20-30.

Lázár, T. (2017). Some sources of misunderstandings in intercultural business communication. International Journal of Engineering and Management Sciences (IJEMS), 2(3), 91-101.

Liton, M. R. I. (2016). Effects of sectoral transformation of employment on GDP in Bangladesh. Global Journal of Management And Business Research, 16(4), 8-13.

McIntyre, A., El-Ashram, A., Ronci, M., Reynaud, J. P., Che, N., Wang, K.,… Yun, H. (2016). Caribbean energy: Macro-related challenges. Web.

Musteen, M. (2016). Behavioral factors in offshoring decisions: A qualitative analysis. Journal of Business Research, 69(9), 3439-3446.

Omidvar, R., & Ravindranath, B. K. (2017). Position of English in India: Three-way categorization. Language in India, 17(5), 279-288.

Pappas, D., & Chalvatzis, K. J. (2017). Energy and industrial growth in India: The next emissions superpower? Energy Procedia, 105, 3656-3662.

Radło, M. J. (2016). Offshoring, outsourcing and production fragmentation: Linking macroeconomic and micro-business perspectives. Warsaw, Poland:Springer.

Sharma, L., & Nagendra, A. (2016). Skill development in India: Challenges and opportunities. Indian Journal of Science and Technology, 9(48), 1-8.

Street, N. L., & Matelski, M. J. (2019). American businesses in China: Balancing culture and communication. Jefferson, NC: McFarland.