The question of where

Monday, 28 october 2019 | Redacción CEU

Nations have never been alone in the world, but now they are more linked to each other than ever. The limitations that borders represent are becoming increasingly irrelevant. We can meet a person who is in the other part of the planet instantaneously and without moving anywhere. We have the possibility of buying a product at our neighborhood supermarket, which has been cultivated or made in a foreign country. We can witness from our living rooms what happens in a faraway market while this impacts our country’s economy. All this is summed up in one word: globalization. This is a phenomenon that causes many effects. Among them, offshoring is one of the most important aspects. 

According to the dictionary of the Royal Spanish Academy, "offshoring" means "moving an industrial production from one region to another or from one country to another, usually looking for lower business costs". In other words, finding a place is key to accessing better competitive conditions and obtaining higher profit margins. The goal of relocation is usually linked to achieving lower costs, but it can also be linked to other factors such as looking for highly qualified professionals or having better means of production. Indeed, this practice does not have to be limited to the production process. Other services like technical support or areas like research and development can be relocated.

It is also important to point out that this strategy is largely caused by the growing interdependence of the different economies. In this global context in which companies can access a greater number of markets seeking to expand their profits and move away part of their business to achieve better conditions, the firms that do not copy these practices come across more obstacles when competing. Therefore, this is a phenomenon that feeds on itself.

The two sides of offshoring 

Offshoring is controversial. Its advocates argue that it helps generate employment and, therefore, stimulate consumption in the target countries. They also believe that employees’ salaries are higher than those that they normally earn, as well as the fact that workers can have access to more and better opportunities. Likewise, they defend that the origin country benefits from price savings. 

On the other hand, offshoring’s detractors point out that this strategy brings about a negative impact on the home country’s economy, since it increases its unemployment rate. They also claim that, many times, the employment which is created does not meet the standards of the origin country. On top of that, the quality of the product and production may be affected by the conditions of the host country.

As in any other strategy, offshoring also means that there are both advantages and disadvantages for companies. Among its positive aspects, we find cost reduction, increased competitiveness, access to new markets (that of the destination country), dynamism in the organization of tasks, etc. Among its negative aspects, we can mention greater exposure to exchange rate fluctuations and tariffs policies, cultural shock, operational difficulties in controlling and monitoring the work, internal conflicts due to a possible reduction in workforce when transferring the activity, etc.