Offshoring is the shifting of production or services to aforeign country and has been a controversial issue over thelast twenty years; a new trend of ‘reshoring’ that isreturning work back to the home country is now taking place.

Critically evaluate whether you consider offshoring has beenof benefit to society and is ‘reshoring’ a correction tooffshoring or a reaction to a change in circumstances and arethinking of strategy by companies.

Introduction

Globalisation is the fundamental concept of our age. Globalizing start to arise since mid-twentieth currently 20 percent of world production is sold outside its country of origin. Most of the restriction were removed after world war two. A few trade agreementssuch as the world trade organization (WTO) and the North American free trade agreement (NAFTA) have helped to the spread of globalization. Globalisation is a process of increasing economic integration and growing economic interdependence between countries in the world economy. It allows countries to build up their exchanges in people, goods and services. Globalization relatively softening up of economic and trade barriers across the countries. Global banking and markets have made world a smaller place to trade that helps countries all over the world to proceed their transactions instantly. Whether it’s raising capital in New York, buying securities in London global banking network has made it all conceivable. Different social theories describe how globalization have grown. Sociologist describes globalization is a product rationalism. There are many factors that influence globalization in this century including the free trade, technological innovation and capitalism. Liberal economics focusses on the role of imaginative market forces in a context of technological change.

International trade theory

International trade theories are simply different theories to describe international trade. Trade is the concept of exchanging goods and services between two people or entities. International trade is then theconcept of this exchange between people or entities in two

different countries. People believe that they benefit from the exchange that’s the one of major reason for people to trade. Tradingmay sound simple but there are great deal of theories in international trade. The core historical theories are called classical theories. Classical theories entirely about country based or from the perspective of a country. According to authors by the mid twentieth century theories converted into firm based theories rather than country based theories. These theories called as modern theories.

Source: 2012 books.

Off shoring

Off shoring is a type of subcontracting and it simply means performing an outsourced business function in another country. This is mainly done in order to minimize the labour expenditure and also for many other considered reasons such as to attract many business opportunities, to expand the current business state, to prevent regulations and to overcome many specific domestic activities.

However India is known as one of the countries which plays a vital role when it comes to off shoring and is also a dominant player moreprecisely in the software market. There are many factors that could be considered in relation to this but mostly 3 factors took effect vitally. First, in the 1970’s the state of India placed the regulations that assigned that all the foreign endeavours holds

Indian majority ownership. Fearing this government seizure many U.S companies specifically IBM, deceased leaving India at its own for itself to have its own technical infrastructures.

Secondly took place the global ubiquity of the internet and broadcastings capacity which intern gave the opportunity to get computer based work to be performed anywhere including India.

Ebenstein et al. (2011) use data from the current population survey (CPS) and show that the impact of offshoring on wages and employmentcan be either positive or negative depending on the country in whichthe offshored work takes place and whether workers remain in the same sector or shift from manufacturing to service after the offshoring takes place.

Reasons for offshoring

Offshoring is not an easy decision for the companies so there are some reasons to offshore such as

1. Mitigate risk 2. Improve quality 3. Faster time to market 4. Obtain new ideas/thinking 5. Rapid expansion of capacity 6. Focus on core competencies 7. Growth with less investment 8. Infuse the company with new technology 9. Leverage the company’s assets and capabilities 10. Improved return on investment 11. Better cast flow 12. Reduced cost

So companies planning to gain more profits by offshoring.

Sectors Popular in Offshoring

Most popular sectors in off shoring are such as software companies- most of the software companies were offshored to countries like India and china. Mainly India with the intention of reducing cost. Employment in software developing in India is rising immensely. Fromthe below table you can see the rate of growth in software employment in US and India

 Increases in Offshoring of Software Production in IndiaEmployment 1995 2005United States 1.5 m 2.6 mIndia 27,500 513,000Source: Dossani and Kenney, this volume.

And china is famous for technological industry and IT. China has a larger force than USA, EUROPE, and JAPAN. That makes labour cost very low and with advanced logistic facilities it makes transportation easy with china. Most of the banks and big companies have built their call centres in countries like India.

Limitations of offshoring

Jobs that can be done by computers and routine are susceptible to beoffshored ( Levy and Murnane 2004) call centres in India is the mostfamous example for low skills jobs to low wages countries. But thereare some limitations to off shore.

Geographical distance Information transferring cost Technological complexity Trade cost Local taxation Hidden compensation High cost for skill maintenance Compliance with human rights and ethical standards

Above image shows drawbacks of offshoring so companies need to consider these limitations before offshore.

Reshoring

It is common that off shoring gives you benefits and save your cost etc. but in the long term there were many other problems that causedby offshoring and those issues were very costly to the companies andthen managements of the companies were very concerned about this matter. Simply reshoring means bringing back the manufacturing of products to place where they will be sold or assembled (Moser 2012).There were few issues have been identified in reshoring. One of themis difficulty of reversing large offshoring’s. And there will be a huge need of skilled workers and they pay would be higher than the offshored country employees.

Recent example for a reshoring is ET water systems in USA. In 2005 they moved into china for manufacturing but soon it creates problem in shipment and quality because of the distance between manufacturing and designing and even shipments took weeks to cross the borders. So they investigate the main aspects of offshoring and realise that’s only 10% cheaper than manufacturing in USA and they reshore all there manufacturing to USA.  In a survey of American manufacturing companies by the Boston Consulting Group (BCG) in April 2012, 37% of those with annual sales above $1 billion said they were planning or actively considering shifting production facilities from China to America.

Ethical issues

Main ethical issue is the unemployment in homeland because taking part of the manufacturing to a different country means people in their own country is losing the job. Since 1979 to 2012 USA have lost 7.8 million manufacturing jobs. And USA have lost more than 42000 factories. Safety and working conditions of the offshored country can be another ethical issue recently due to a fire in foxconn’s china three people were died and 137 people have been injured due to a toxic while making apple’s glass screen. And childlabour is another ethical issue because in some countries that law doesn’t exist so company do recruit under age people. Protection intellectual property copyright rights and piracy of trade mark are vital issues. Because of this issue there are lot of fake products are being used in south Asia and Asia.

Conclusion

As above details states main reason for the off shoring is low labour cost because there is not much difference in other cost but with the wages rise in offshored countries giving second thoughts about reshoring. China have warned that their wages can be arise up to 15% - 20%. Even lot of customers aren’t happy with customer service that their getting by other country employees. It’s important to any country to keep their jobs within their country. Hidden cost may arise when off shoring statistics found that initialcosts and final costs often differ. Reshoring can bring more quality to the service and it can produce a growth in economy. By reshoring companies can reduce transportation cost and save lot of time between designing and manufacturing. It is important to think about cycle of the production. It has been proved that it has more advantage in reshoring. For many aspects reshoring will be the best option.

Appendices

Bibliography Abraham KG, Taylor SK (1996) Firms’ use of outside contractors: theory and evidence. J Labor Econ 14(3):394–424

Aron, R. and Singh, J. V. (2005). Getting Offshoring Right. Harvard Business Review. Vol. 83 (12), 135-143.

Blinder, Alan (2007), “How Many US Jobs Might be Offshorable?”, Princeton University, CEPS Working Paper No. 142.

Daniels, J. Radebaugh, L. Sullivan, D (2009) International Business. 12th ed. England: Pearson

Dicken, P (1992) Global Shift. 2nd ed. London: Paul Chapman Publishing Ltd

Freeman R (2007) the expansion of the global labour supply. In: PausE (Ed) Global capitalism unbound: winners and losers from offshore outsourcing. Palgrave Macmillan, London

Guy, F (2009) the Global Environment of Business. New York: Oxford University Press

Kennedy, E. R., Sharma, A. (2009). The Service Shift: Seizing the Ultimate Offshore Opportunity. U.S. FT Press

Kehal H, Singh V. (2006). Outsourcing and offshoring in the 21st century. A socio economic perspective. Idea group publishing.

IMF (2000) offshore nancial centres. IMF Background Paper, June fi2000. Prepared by the Monetary and Exchange Affairs Department