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Although an old-age sensation, offshoring has lately gained a new dynamic due to the decrease in communication costs and transport, not forgetting the dramatic advancements in technology. The offshoring trend has dramatically influenced the relocation of conventional production stages, also known as material offshoring. In addition, it has enabled the relocation of the immaterial process and the service offshoring. Offshoring to developing countries is growing, allowing companies to profit from lower labor costs in developing countries. However, this has caused panic in industrialized countries, as their citizens fear massive job losses that adversely impact the level of unemployment. It is noteworthy that market research companies have reinforced these concerns by presenting alarming statistics, which has made offshoring the subject of heated debate in most developed countries and consequently, the United States will be the main focus of this essay. This essay will argue that although offshoring increases productivity and reduces labor and transportation costs, it negatively impacts the host countrys economy and increases job losses and conclude that despite the minor negative consequences, offshoring remains a win-win situation for both businesses and society.
The global economy benefits greatly from offshoring, with the United States having a large share in this economy. As a result, a business can significantly lower costs and increase its competitiveness, enabling the economy to create more output (Bramucci et al., 2021, p. 405). According to Bramucci et al. (2021, p. 405), the offshoring volume may rise over the next five years by 30 to 40 percent, which could mean an annual job loss of up to 200,000 service jobs. However, instead of shrinking from this, United States policy and businesses should ensure the economy is flexible to cushion the effects of job losses brought by offshoring. Models, where the United States faces potential losses due to increased trade resulting from offshoring, portray the likelihood of U.S. trading partners increasing production in generating goods and services that are the specialty of the United States. Offshoring can create a competitive environment by boosting employees performance, thereby increasing the number of services and items produced (Anderson & Karpaty and Savsin, 2014, p. 254). Many jobs are expected to be transferred to offshoring countries, which will motivate people from developing countries to apply for it (Magli, 2020). It is a beneficial opportunity for attracting foreign labor and hard-working workers. As a result, it can help the workers increase their competitive interests and manufacture more goods in the United States, thus creating a win-win situation for businesses and society.
Moreover, offshoring decreases labor costs. Companies also use offshoring to save costs and increase revenue growth. Several scholars explain offshoring operations more extensively, emphasizing the connection between the economic effects of offshoring and the primary consideration of technical development (Bramucci et al. 2021, pp. 400-411). Offshoring is regarded as an external shift throughout the production process that has a non-uniform impact on the labor market and company productivity. Offshoring has recently acquired a new dimension, whereas transportation costs have decreased and online information technology is advancing tremendously. It has made additional fragmentation of manufacturing processes and the migration of production phases possible (Breemersch, Damijan and Konings, 2017). Furthermore, developing countries are becoming increasingly relevant in transporting goods (Breemersch, Damijan and Konings, 2017). The idea here is that the manufacturer does not need to transport anything from an offshore state to the country of sale. Thus, hiring additional staff to perform tasks is not necessary, making the entire process less costly. By incorporating them into global manufacturing networks, multinational corporations can benefit from reduced wage costs in emerging countries. As a result, thanks to offshoring, many businesses get more value due to improved revenues than lesser costs.
On the other hand, offshoring puts the economic dominance of the United States at risk. For example, Szymczak and Wolszczak-Derlacz (2022, p. 81) describe the circumstances where the United States trading partners experience increased productivity in a key United States industry. Offshoring necessitates active governance to enhance efficiency while avoiding fairness difficulties (Magli, 2020). The U.S. dominance remains at risk because it is a large manufacturer of goods and services (Guschanski & Onaran, 2021). Once it is substituted by another offshoring country, it is threatened to decrease the volumes of goods, thereby making less profit and firing the staff. The U.K. and Japan are significant players in the offshoring markets, which creates significant threats to the position of the U.S.A. The primary threat is Japan because Asian countries are gaining more influence due to vast technological advances (Breemersch, Damijan and Konings, 2017). Besides, the economic partnership between the offshoring countries remains at a low level due to each states desire for independence (Breemersch, Damijan and Konings, 2017). While exporting goods to other countries, the United States may encounter competitive advantages posed by other states. This may result in increased competition and further failure of economic benefits. Therefore, this ultimately results in a decrease in United States national income due to a United States company losing its position as the leading global producer in the concrete industry.
Additionally, reduced labor costs have brought panic in developed regions that jobs formerly concentrated in the North will be transferred to emerging economies. Market research firms have increased these anxieties by releasing worrying headline data that anticipate significant job losses in industrialized countries while taking advantage of the workers (Andersson, Karpaty and Savsin, 2014, p. 252). Offshoring is frequently criticized for decreased job growth and constant downward wage pressure in industrialized states. A detailed review of the research reveals that such fears commonly occur and boost the likelihood of general economic instability (Andersson, Karpaty and Savsin, 2014, p. 256). Employees worldwide fear losing jobs due to the relocation of their workplaces to offshore zones. The potential risk of unemployment also affects the economic status of the country. Since offshoring and manufacturing fragmentation are becoming increasingly essential, attempts to create new prospects for both industrialized and emerging economies have been made, yet job loss remains a risk (Carluccio et al., 2017). There always have been few efforts to evaluate the influence of this procedure in developing nations receiving financial aid. In general, job loss is a major drawback that impedes the development of offshore businesses and worsens the economic situation.
In conclusion, it is hard to measure the extent of offshoring because there is not enough data, and there are not enough instruments to record inter and intra-sector correlations. However, first-hand information has shed light on the direct and indirect influence offshoring has on employment in developed countries. It may negatively affect the U.S. economy, especially with competitive markets, and result in job losses. Nonetheless, offshoring has more advantages since it is essential for labor markets in industrialized countries. It highlights the possibility of increasing performance rates and decreasing labour costs. Offshoring creates new opportunities that arise due to trade-in tasks for the developed and developing nations. Offshoring countries suggest prosperous perspectives for business development and expanding financial operations; therefore, it is beneficial to launch an enterprise in, for instance, the United States since it is quite a competitive offshoring area. As a consequence, it can greatly cut labor costs and increase productivity which will positively affect the economy.
References
Andersson, L., Karpaty, P., and Savsin, S. (2014) Labour demand, offshoring and inshoring: evidence from Swedish firmlevel data, The World Economy, 40(2), pp. 240-274.
Bramucci, A., Cirillo, V., Evangelista, R., and Guarascio, D. (2021) Offshoring, industry heterogeneity and employment, Structural Change and Economic Dynamics, 56, pp. 400-411.
Breemersch, K., Damijan, J. P., and Konings, J. (2017) Labour market polarization in advanced countries: impact of global value chains, technology, import competition from China and labor market institutions.
Carluccio, J., Cuñat, A., Fadinger, H., and Fons-Rosen, C. (2017) Winners and losers from globalization: offshoring benefits skilled workers and hurts the less skilled, Rue de la Banque, (51).
Guschanski, A., and Onaran, Ö. (2021) The decline in the wage share: falling bargaining power of labor or technological progress? Industry-level evidence from the OECD, Socio-Economic Review.
Magli, M. (2020) The direct and indirect effect of services offshoring on local labor market outcomes.
Nordås, H. K. (2020) Make or buy: offshoring of services functions in manufacturing, Review of Industrial Organization, 57(2), pp. 351-378.
Nordås, H. K. (2019) Offshoring of services functions and labor market adjustments.
Szymczak, S., and Wolszczak-Derlacz, J. (2022) Global value chains and labor marketssimultaneous analysis of wages and employment, Economic Systems Research, 34(1), pp. 69-96.
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