Offshoring is the relocation of business processes from one country to another - usually operational processes, such as manufacturing, or support processes, such as accounting. Usually this refers to the business of the company, although the state government can also use offshoring. Recently, offshoring has been associated primarily with outsourcing technical and administrative services that support domestic and global operations from outside the home country ("offshore outsourcing"), using a captive or outsourcing model.
This term is used in several different but closely related ways. It is sometimes used extensively to include service substitutions from any foreign source for services previously produced internally to the company. In other cases, only the import services of a subsidiary or other related suppliers are included. A further complication is that semi-finished goods, such as partially completed computers, do not consistently fall within the scope of the term.
Offshoring can be viewed in the context of offshoring production or offshoring services. After the accession to the World Trade Organization (WTO) in 2001, the People's Republic of China emerged as the primary objective for offshoring production. Another focus area is the software industry as part of the global software development and development of global information systems. Once technical advances in telecommunications increase the likelihood of trading in services, India has become one of the main goals for offshoring, although many parts of the world now emerge as offshore destinations.
The economic logic is to reduce costs, sometimes called arbitration of labor, to improve the profitability of enterprises. Jobs are added in the destination country to provide goods or services (typically lower-cost labor countries), but reduced in higher-cost labor countries. Increasing the cost of unemployment safety nets can be absorbed by government (taxpayers) in high-cost countries or by offshoring companies. Europe is experiencing less offshoring than the United States due to policies that impose more costs for companies and cultural barriers.
Video Offshoring
Frequently used terms
Offshoring is defined as the movement of business processes conducted in a company in one country to the same company or another in another. Almost always work is moved due to lower operating costs at new locations. Recently, offshoring drivers also include access to qualified personnel abroad, particularly in the technical profession, and increasing speed to the market. Offshoring is sometimes contrasted with outsourcing or offshore outsourcing. Outsourcing is the movement of internal business processes to external organizational units. Outsourcing refers to the process by which an organization assigns a part of its work to another company/organization and makes it responsible for most applications and business process design of the company. This process is conducted under constraints and strategies to build consistency with offshore outsourcing organizations. Many companies today outsource various professional areas in companies such as e-mail services, payroll, and call centers. This work is being handled by other organizations that specialize in every sector that allows offshoring companies to focus more on other business issues. However, subcontracting in the same country will be outsourced, but not offshoring. Companies that move an internal business unit from one country to another will be offshoring or physical restructuring, but not outsourced. Companies subcontracting business units to different companies in other countries will be outsourced and offshoring.
Related terms include nearshoring, which implies the relocation of business processes to (usually) low-cost overseas locations, but within close geographical distances (eg, shifting business processes based in the United States to Canada/Latin America); inshoring, which means choosing services in a country; and bestshoring or hakhoring, choosing the "best beaches" based on various criteria. Outsourcing business processes (BPOs) refer to outsourcing arrangements when all business functions (such as Finance & Accounting, Customer Service, etc.) are outsourced. More specific terms can be found in the field of software development - eg Global Information Systems as a class of systems developed for/distributed teams globally.
Another term sometimes associated with offshoring is aberrant behavior that is a practice of using offshored resources and personnel to perform small tasks in a segmented business environment, without the wider intention of offshore the entire business function.
Production offshoring
Offshoring production, also known as physical restructuring, established products involves relocating physical manufacturing processes to lower cost destinations. Examples of offshoring production include the manufacture of electronic components in Costa Rica, clothing production, toys, and consumer goods in China, Vietnam etc.
Product design, research, and development processes that lead to new products are relatively difficult to do offshore. This is because research and development, to improve products and create new reference designs, require a more difficult set of skills in areas with cheap labor. For this reason, in most cases only manufacturing will be fired by companies that want to reduce costs.
However, there is a relationship between offshoring and patent system strength. This is because companies under a strong patent system are not afraid to move overseas jobs because their work will remain theirs. In contrast, companies in countries with weak patent systems have increasing fears of theft of intellectual property from vendors or foreign workers, and, therefore, have less offshoring.
The main incentive for physical restructuring came when the North American Free Trade Agreement (NAFTA) made it easier for manufacturers to shift production facilities from the US to Mexico. This trend then shifted to China, which offered low prices through very low wage rates, some workers' rights laws, fixed currencies pegged to the US dollar, (currently fixed with an economic basket) cheap loans, cheap land, and factories for new companies, some environmental regulations, and large-scale economies based on cities with populations of over one million workers dedicated to producing one type of product. However, many companies are reluctant to drive the production of high value-added products to China due to weak intellectual property law enforcement. NAFTA has increased the speed at which physical restructuring occurs.
Services that support IT offshoring
The growth of offshoring of IT-backed services is linked to the availability of a large number of reliable and affordable communications infrastructure following the expansion of telecommunications and the Internet in the late 1990s. This is seen along the way until 2000. Coupled with the digitization of many services, it is possible to shift the actual production location of services to low-cost countries in a way that is theoretically transparent to end users. Services include administrative services, such as finance and accounting, HR, and law; call center; marketing and sales services; IT Infrastructure; application development; and knowledge services, including technical support, product design, research and development, and analytics.
India first benefited from offshoring trends, having a large group of English-speaking people and technical experts. The Indian offshoring industry took root in low-end IT functions in the early 1990s and has since moved into back-office processes such as call centers and transaction processing. This spawned a Bangalored neologism, used to denote layoffs, often systemic, and usually resulted from outsourcing companies to lower wage economies - originated in Bangalore in India, where some of the first outsourcing centers were located.
Today, India's low-cost workforce has turned it into an offshoring destination for global companies such as HP, IBM, Accenture, Intel, AMD, Microsoft, Oracle Corporation, Cisco and SAP.
Due to inflation, high domestic interest rates, strong economic growth and increased IT offshoring, Indian IT sector has witnessed 10 - 15% wage growth in the 21st century. As a result, Indian operations and companies fear that they become too expensive when compared to competition from other offshoring objectives. To maintain a high growth rate, efforts have been made to grow the value chain and diversify into other high-end jobs in addition to software and hardware engineering. This work includes research and development, equity analysis, tax return processing, radiological analysis, medical transcription, and more.
The choice of offshoring objectives is often made according to cultural issues. Japanese companies are beginning to outsource to China, where a large number of Japanese speakers can be found - especially in the city of Dalian, which is Japanese territory occupied by Japan for decades (this is discussed in The World is Flat ). German firms tend to outsource to Eastern European countries, such as Poland and Romania, where proficiency in German is common. French companies outsource North Africa for the same reason. For Australian IT companies, Indonesia is one of the main choices of offshoring objectives. Location near the beach, common time zone and adequate IT workforce is the reason for offshoring IT services to Indonesia.
Other offshoring destinations include Mexico, Colombia, Central and South America, the Philippines, South Africa and other Eastern European countries.
The Central American Free Trade Agreement (CAFTA) makes nearshoring more attractive between Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic and the United States.
Innovation offshoring
After the company was comfortable with the service offerings and began to realize cost savings, many high-tech product companies, including some in Silicon Valley, started offshoring innovation work to countries like Colombia, Belarus, South Africa, India, China, Mexico, Russia and Ukraine.. Accessing talent pools in these countries has the potential to cut costs or even shorten product life cycles. Developing countries like India are also involved in this practice.
When the work of offshoring knowledge, the company relies heavily on the availability of technical personnel at offshore locations. To secure access to talent, Western companies often build collaborative relationships with overseas engineering universities and thereby adapt university programs to serve their particular needs. Examples include universities in Shanghai, such as Tong-Ji University, where German companies and academics sponsor labs, courses, and internships. Similar examples of collaborative arrangements can be found in Eastern Europe, e.g. Romania. In addition, EU companies seeking IT innovations often organize collaborations with universities in countries such as Belarus and Ukraine, which have a high percentage of ICT graduates and are overall highly skilled IT personnel.
Re-shoring
"Re-shoring", also known as "backshoring" or "inshoring" is offshoring that has been returned to the mainland.
John Urry (associate professor of sociology at the University of Lancaster) argues that income concealment, tax evasion and the avoidance of work-related laws, finances, fun, waste, energy and security may be a serious concern for democratic governments and ordinary citizens. which may be affected by unregulated offshore activity. Furthermore, increased transportation costs can lead to closer production at the point of consumption to be more economical, especially as new technologies such as mature additive manufacturing.
Maps Offshoring
Transfer of intellectual property
Offshoring is often activated by the transfer of valuable information to offshore sites. Such information and training enable remote workers to produce comparable worth of results previously produced by internal employees. When such transfers include protected material, as confidential documents and trade secrets, covered by a non-disclosure agreement, then the intellectual property has been transferred or exported. Such export documentation and valuation is quite difficult, but should be considered because it consists of items that can be regulated or taxed.
Debate
Offshoring has become a controversial issue spurring a fierce debate among economists, some of which overlap related to free trade topics. It is seen as benefiting the country of origin and destination through free trade, providing employment to the destination country and the lower cost of goods and services to the country of origin. This makes both parties see an increase in gross domestic product (GDP). And the total number of jobs has increased in both countries since workers in their home country who lost their jobs can move to higher-value jobs in which their countries have a comparative advantage.
On the other hand, job losses and wage erosion in developed countries have sparked opposition to offshoring. Experts argue that the quality of new jobs in developed countries is less than lost jobs and offers lower pay. Economists fighting offshoring imposes currency manipulation by governments and their central banks causing differences in labor costs creating the illusion of comparative advantage. Furthermore, they show that more highly educated workers with higher-value jobs such as software engineers, accountants, radiologists and journalists in developed countries have been replaced by highly educated and less expensive workers from India and China. On May 1, 2002, Economist and former Ambassador Ernest H. Preeg testified before the Senate committee on Banking, Housing and Urban Affairs that China, for example, pegs its currency against the dollar with a value below par in violation of Article IV. Article Fund of the International Monetary Fund states that no nation manipulates its currency to gain market advantage.
Impact on jobs in western countries
The Economist reported in January 2013 that: "The high unemployment rate in Western countries after the 2007-2008 financial crisis has made public in many countries so hostile to offshoring that many companies are now reluctant to engage in me. " Economist Paul Krugman wrote in 2007 that while free trade among high-wage countries is seen as a win-win trade, free trade with low-wage countries is winning for many employees who find their jobs fired or stagnant wages. Two estimates of offshoring impact on employment in the US are between 150,000 and 300,000 per year from 2004-2015. It represents 10-15% of the creation of US jobs.
Increasing the cost of unemployment safety nets can be absorbed by government (taxpayers) in high-cost countries or by offshoring companies. Europe is experiencing less offshoring than the US because of policies that impose more costs on corporations and cultural barriers.
Research has found that offshoring has a mixed effect on wages and jobs, with some studies showing insignificant effects, some showing negative effects, while other studies have found that offshoring actually improves employment and low wage skills in offshoring countries. A 2017 study found that offshoring benefits "offshoring can result in wage increases and jobs for high- and low-skilled workers through" technology channels "where it encourages deepening complementary capital skills and greater innovation in the US industry." The study also found that "offshoring increases real wages for skilled and high-skilled workers, but more for the former, increasing inequality."
Legal implications in Japan
Japanese companies use offshoring to exploit foreign workers, especially China and Vietnam, violating the Labor Safety Act and the Labor Standards guidelines set by Japan's Ministry of Health, Labor, and Welfare. Article 44 of the Manpower Employment Act implicitly prohibits unofficial companies supplying domestic/foreign workers, regardless of location of operations. The law applies if at least one party between suppliers, clients and workers resides in Japan, and if the worker is part of an integral part of the chain of command of the client or supplier company:
The Manpower Act provides the following punishment guidelines:
The victim may file a criminal complaint against the CEO of the supplier and the client to the Labor Standards Inspection Office (in the case of the Labor Standards Act) or the Public Prosecutor's Office at the company's premises. Due to the risk of arrest of the CEO, Japanese companies tend to personally live with the plaintiff, offering between 20 and 100 million JPY (about 200,000 - 1 million USD) in damages.
Competitive worries
By 2015, IT jobs in the United States have recently reached pre-2001 levels and have increased since then. The number of jobs lost due to offshoring is less than 1 percent of the total US labor market. According to a study by Heritage foundations, outsourcing represents a fraction of the work lost in the US. The total number of jobs lost due to offshoring, both manufacturing and technical represent only 4 percent of total lost jobs in the US. The main reason for cutting jobs is from contract completion and downsizing. Some economists and commentators claim that the offshoring phenomenon is too much.
Public opinion
US polls show that between 76-95% of Americans surveyed agree that "outsourcing production and manufacturing work abroad is the reason the US economy is struggling and many people are not employed."
Influence of production mobility factor
According to the classical economy, the three factors of production are land, labor, and capital. Offshoring relies heavily on the mobility of these two factors. That is, how offshoring affects the economy depends on how easily capital and labor can be diverted. Soil, as a factor of production, is generally seen to have little or no mobility potential.
The effects of capital mobility on offshoring have been widely discussed. In a microeconomics, a company should be able to spend its working capital to pay offshoring initial costs. If the state really regulates how the company can spend its working capital, then the company will not be able to perform operations abroad. For the same reason, macroeconomics should be free to offshoring in order to succeed. Generally, those who support offshoring support capital mobility, and those who oppose offshoring calls for greater regulation.
Worker mobility also plays a major role, and this is highly debated. When computers and the Internet work electronically, free market forces lead to global mobility working in the service industry. Most offshoring disputing theories ultimately benefit domestic workers who assume that workers will be able to get new jobs, even if they have to get a job by lowering their self-esteem back into the labor market (by receiving a lower salary) or by retraining themselves they are in a new field. Foreign workers benefit from new jobs and higher wages when the work moves on to them.
Offshoring faces criticism from workers intellectuals who argue that global labor arbitrage leads to unethical practices, related to workers' exploitation, eroding working conditions and reducing job security.
History
In developed countries, moving manufacturing jobs abroad at least until the 1960s while transferring overseas knowledge services jobs in the 1970s and has continued since then. It is characterized primarily by transfer of factories from developed countries to developing countries. The offshoring and closure of this plant has led to structural changes in industrialized nations from the industrial to postindustrial service communities.
During the 20th century, the decline in transportation and communications costs are crossed with a large difference in wage rates making offshoring increases from rich countries to less wealthy countries financially viable for many companies. Furthermore, the growth of the Internet, in particular the capacity of fiber-optic long-distance interconnection, and the World Wide Web reduce the cost of "transportation" for various types of information work close to zero.
With the development of the Internet, many new categories of work such as call centers, computer programming, reading medical data such as X-rays and magnetic resonance imaging, medical transcription, income tax preparation, and title searching are offshored.
Before the 1990s, Ireland was one of the poorest countries in the EU. Due to the relatively low corporate tax rate in Ireland, US companies began offshoring software, electronics, and pharmaceutical intellectual property to Ireland for export. This helped create a "boom" of high technology and that led Ireland to be one of the richest EU countries.
In 1994 the North American Free Trade Agreement (NAFTA) came into force. Because of widespread concern about uneven bargaining power, and risks and benefits, negotiations are often difficult, so plans to create free trade zones (such as the American Free Trade Area) have not been successful. In 2005, offshoring skilled work, also referred to as knowledge work, dramatically increased from the US, which feeds growing concerns about the threat of job loss.
See also
By sector:
- Business process flow
- Information technology consultation
- Legal out
- Offshore software R & amp; D
- Offshore custom software development
References
Further reading
- Alan S. Blinder, "Offshoring: Next Industrial Revolution?" in Overseas , Vol. 85, No. 2 (March/April 2006), p. 113-128.
- Thomas L. Friedman, The World is Flat: A Brief History of the Twenty-First Century (2005).
- Catherine L. Mann & amp; Jacob Funk Kirkegaard, Accelerates American Globalization: Role for Information Technology , International Economics Institute, Washington D.C., Peterson Institute for International Economics (June 2006).
- Stephan Manning, Silvia Massini & amp; Arie Y. Lewin, A Dynamic Perspective in Offshoring Next Generation: Global Source of Talent Science and Engineering, Academic Management Perspective , Vol. 22, No. 3 (October 2008), p. 35-54. JSTORÃ, 27747462
Source of the article : Wikipedia
0 Comments