- June 29, 2020
Offshoringentails relocating certain operations of a company such asmanufacturing and accounting to another country (Oshri, Kotlarsky &Willcocks, 2011). Companies are increasingly using offshoring as astrategy to ensure that they meet the required production standardsand levels. Corporations in America and European countries areincreasingly turning to China and India to manufacture their goods(Oshri, Kotlarsky & Willcocks, 2011). Consequently, offshoring ismainly caused by increased cost of production and shortage of skilledlabor, but it can lead to loss of jobs, intellectual property, and anincrease in unethical business practices.
Thecost of production is one of the primary reasons why companiesconsider offshoring. Businesses base some of their operations inother countries as a means of reducing labor and operational costs(Arik, 2013). Some countries have relatively cheap workforce comparedto others due to internal strategies such as taxation and governmentincentives thus, it translates into lower manufacturing costs. Someregions have more workers to provide both skilled and unskilledworkforce due to a high population. It increases competition in thelabor market thus, results in low costs (Arik, 2013). In contrast,labor costs are higher in America and European nations due to theincreased cost of living. Besides, workers are entitled to otherbenefits such as social security, employers insurance, and healthbenefits that increase the labor costs (Arik, 2013). Therefore,companies find it easier to have their products manufactured abroadand then be shipped back to the country.
Furthermore,shortage of skilled labor also requires companies to use offshoring.When countries have a scarcity of skilled laborers to cater for itsindustries needs, companies opt to find the expertise in otherregions. Thus, businesses have to look for alternatives sources ofskills they require to meet their production quotas. On the otherhand, countries like India and China have an overflow of skilledlabor more than what the local businesses need (Iqbal & Dad,2013). Hence, companies in Western countries find it easieroffshoring certain operations to China and India to offset localshortages.
However,offshoring has resulted in the loss of jobs in countries where thecompanies decide to branch some of their business activities. Whencompanies move their operations to other regions, they have to shutdown of some of their local plants. Thus, they have to lay off someof the workers if they cannot get them alternative jobs within thecompany (Iqbal & Dad, 2013). It leads to the loss of livelihoodthat can have a negative impact on the economy of a country.Offshoring has affected the Americans workers, especially in themanufacturing sector. Statistics show that only a small percentage ofpeople laid off in America due to the effects of offshoring havefound replacements or alternative source of income (Iqbal & Dad,2013).
Moreover,a company can lose its intellectual property due to offshoring.Basing some of the business processes or services in another countryrequire sharing an extensive array of an organization’s knowledge,which includes patents, trade secrets, and trademarks (Reh, 2016).Countries have different laws on the protection of patents andintellectual property. However, most regions that offer the cheapestproduction costs lack proper legislations to protect the intellectualproperty (Reh, 2016). Therefore, copyright laws are rarely enforcedleading to the production of counterfeit goods that bear a company’slogo and name but do not necessarily meet the required standards.Thus, it could damage the brand image and reputation in the market.Additionally, a company would stand to lose revenue from theproduction of counterfeit goods because they are usually sold at alower price.
Offshoringhas also led to an increase in unethical business practices. Laborstandards differ and practices acceptable in one part of the globecould be illegal in the other regions (Pedersen, 2013). Therefore,locals are tasked with hiring the laborers, and their criteria maypromote illegal labor practices to reduce production costs further.In some overseas companies, the locals may ignore the corporatesocial responsibility such as environmental issues. Accordingly, theoffshoring business is blamed for the illegal practices that mighthave a negative impact on the brand image.
Inconclusion, offshoring is the relocation of some of the operations ofa company to another country. Companies turn to transfer some oftheir business activities to reduce the cost of production becausesome countries have cheap and readily available labor. Moreover, somecountries have a shortage of skilled labor, and this necessitatesoffshoring to meet the required production standards and levels.Offshoring companies have also been blamed for unethical businesspractices including child labor. Hence, companies have to be carefulwhen selecting a region conducting their production activities toavoid destroying the brand image.
Arik,M. (2013). Framing the Offshoring and Re-shoring Debate: A ConceptualFramework. TheJournal of Global Business Management,9(3), 73-83.
Iqbal,Z. & Dad, A. M. (2013). Outsourcing: A Review of Trends, Winners& Losers and Future Directions. InternationalJournal of Business and Social Science,4(8), 91-107.
Oshri,I., Kotlarsky, J., & Willcocks, L. (2011). Thehandbook of global outsourcing and offshoring.Basingstoke, Hampshire: Palgrave Macmillan.
Pedersen,T. (2013). Theoffshoring challenge: Strategic design and innovation for tomorrow`sorganization.London: Springer.
Reh,F. J. (2016). Offshoring,Smart Business or Shortsightedness? TheBalance.Retrievedfromhttps://www.thebalance.com/offshoring-smart-business-or-shortsightedness-2275188