Different Forms of Offshoring
- The transfer of a pre-existing activity: the closure of a production unit in a country followed by its reopening abroad with a view to re-importing into the national territory at reduced cost, or continuing to supply the export market, from the new facility;
- The creation ex nihilo of a new unit abroad;
- Corporate buy-outs;
- International subcontracting.
(adapted from Moreau, M.-A.,
The Internationalization of Employment and the Debate About Offshoring
in France: Legal Perspectives, in
Offshoring and the Internationalization of Employment, ILO, visited 2011-04-18)
Evolution of Offshoring
"Relocation abroad requires governments to remove legal obstacles to the free flow of capital, goods, and services across borders. Since the mid-1980s, international trade agreements in the GATT […] and in its successor, the WTO (World Trade Organization), have progressively liberalized the movement of foreign direct investment and trade in goods and services among the world's major economies."
"Many white-collar jobs in software, banking, insurance, medical services, and back-office operations are moving out of advanced industrial countries into offices in India, the Philippines, and elsewhere in the developing world."
(Berger, S.,
How We Compete: What Companies Around the World Are Doing to Make it in Today's Global Economy, Doubleday Broadway, 2005, p. 96, 98)
"Some studies point to the fact that
offshoring in the services industry has developed significantly over the last three years [2002-2005] and that the trend is also progressing in highly-skilled services due to fantastic progress in training and education levels in emerging countries, mainly China and India."
(Auer, P., G. Besse and D. Méda,
Offshoring and the Internationalization of Employment, ILO, visited 2011-04-18)
Effects of Offshoring in Home Countries
Offshoring, which is often considered to be the most obvious consequence of globalization, represents only a very small percentage of job losses. Like trade and international investments, it could even have a positive effect on developed countries, by stimulating productivity gains and increasing market share.
There are three major risks to
offshoring for developed countries: the risk of ‘undermining the engines' of productivity and the standard of living; the risk of deepening wage pressures; and the risk of seeing enterprises brandishing the threat of
offshoring and thereby reducing the ability of trade unions to defend workers, wages and the distribution of income.
Restructuring processes which cause major workforce shifts are only partly due to
offshoring, but they help to increase the sense of insecurity felt by people.
(adapted from Auer, P., G. Besse and D. Méda, ILO,
Offshoring and the Internationalization of Employment, ILO, visited 2011-04-18)
"The current unprecedented media-attention given to the trend of
offshoring, and the exaggeration of this trend by both employers and employees, reflects somewhat how social partners have used this issue as a bargaining tool, rather than an unprecedented growth in
offshoring."
(Gerstenberger, B. and R. A. Roehrl,
Service Jobs on the Move – Offshore Outsourcing of Business Related Services, in
Offshoring and the Internationalization of Employment, ILO, visited 2011-04-18)
Effects of Offshoring in Host countries
"
Offshoring generates not just work for people living in underdeveloped conditions, but also resources and facilities for the country to which the company relocates. [However,] the profits generated by this new economic activity are sometimes directed into the pockets of unscrupulous managers, and the host country remains under-equipped. Also [in some instances,] the workers are extremely poorly paid and are genuinely exploited, with excessive working hours, dangerous or unhealthy working conditions, etc.
Fortunately, this is not the general rule. Many countries are conscious of their responsibility and ensure that the activity generated by
offshoring benefits the public at large [and the workers they recruit]."
(Waquet, P.,
The Role of Labour Law for Industrial Restructuring, in
Offshoring and the Internationalization of Employment, ILO, visited 2011-04-18)
However, "the effects of
offshoring and subcontracting for the low-wage countries may not be as favourable as predicted by the mainstream economists. Incoming investment may be more labour saving than domestic investment, hence limiting the job generation capacity of FDI [Foreign Direct Investment]. Multinational companies often cream off the most skilled labour workers from the local labour market, creating negative spill-over for domestic enterprises. Investment inflows tend to be highly selective, reaching mainly the most advanced regions with the best infrastructure and bypassing the disadvantaged and rural regions where employment gains are most urgently needed. Evidently, wage and income inequality in poor countries – including China and India – are rising even faster than in the rich nations."
(Sengenberger, S.,
The Role of International Labour Standards for Governing…, in
Offshoring and the Internationalization of Employment, ILO, visited 2011-04-18)
The Trend of "Reverse Offshoring"
"Such a trend can be illustrated by some of the larger Indian service providers, who started off as subcontractors in routine software programming and now operate as full business process providers, and who are sourcing globally themselves, including moving some activities ‘back' into Europe."
(Gerstenberger, B. and R. A. Roehrl, ILO,
Service Jobs on the Move – Offshore Outsourcing of Business Related Services, in
Offshoring and the Internationalization of Employment, ILO, visited 2011-04-18)
Offshoring, Onshoring, Nearshoring, etc.
There is often confusion in the literature over the different meanings of these terms and different authors may use the same terms to refer to different realities, or use different but similar terms to refer to the same realities. This proliferation of terms is an indication of the importance of this topic in economic circles.
The term "
offshoring" assumes the perspective of the country of origin, i.e. it refers to the relocation of the domestic activity to locations outside national borders, (literally "off their shores"). Therefore, if the host county's perspective is adopted, the relocation of a foreign company's activities onto its territory is necessarily referred to as "onshoring," (as it happens "on their shore").
However, "onshoring" has also been used to refer to the repatriation of business processes that were previously performed in other countries, back to the original country of activity, ("back on the original shore"). The terms "inshoring," "home-shoring," and "backshoring" are synonymous with "onshoring."
The term "nearshoring" refers to
offshoring in a country close to the country of origin (e.g. Poland or Hungary to Germany, Mexico to the U.S.)
These terms are often used in the media, and the differentiation between offshore production and offshore outsourcing is far from clear. Economists and scholars often refer to this trend as the relocation of industry, or the repatriation of production and jobs.
Rightshoring: An Optimum Mix
Rightshoring or bestshoring can be defined as the restructuring of a company's workforce to find the optimum mix of jobs performed locally and jobs moved to foreign countries.
For example, Convergys, one of the world's biggest providers of ‘contact-centre services,' advises companies to shift simple customer queries offshore while retaining the more complex ones on the same shore as the caller, given that customers with complex queries do not respond well to far-off operators repeating a series of learned responses.
