Essay About Great Fear Of Offshoring And Overview Of The Consequences Of Offshoring

International Management
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Offshoring
« Do we have to fear the globalization of human capital? »
Jean-Luc Baer
Basile Blancpain
Felix Lademacher
Vladimir Mun
Group Assignment
« International Management »
University of St. Gallen
Dufourstrasse 90
CH – 9000 St. Gallen
Prof. Dr. Winfried Ruigrok
Offshoring: Do we have to fear the globalization of human capital?
Group 12: Jean-Luc Baer, Basile Blancpain, Felix Lademacher, Vladimir Moon 1
Table of Content
1 INTRODUCTION 2
1.1 Term clarification 2
1.2 Development of offshoring 3
2 INFLUENCE OF OFFSHORING FROM A COMPANY PERSPECTIVE 5
2.1 Influence on companies from developing countries 5
2.2 Influence on companies in developing countries 7
2.3 Summary 8
3 INFLUENCE OF OFFSHORING ON AN ECONOMY AS A WHOLE 9
3.1 Influence on developed countries 9
3.2 Influence on developing countries 10
3.3 Summary 11
4 INFLUENCE ON EMPLOYEES 12
4.1 Influence on employees in developed countries 12
4.2 Influence on employees in developing countries 13
4.3 Summary 14
5 CONCLUSION 15
REFERENCES 17
Offshoring: Do we have to fear the globalization of human capital?
Group 12: Jean-Luc Baer, Basile Blancpain, Felix Lademacher, Vladimir Moon 2
1 Introduction
The authors would like to begin this paper with a quote of the famous night show host David
Letterman: “President Bush is on an eight-day tour of Asia. Hes visiting American jobs.”
Especially in the United States a great fear of offshoring exists. Many politicians, some
economists and a considerable part of the population have the opinion that their country will,
at least in the long run, suffer strongly as a consequence of offshoring. They opine that
offshoring is an irreversible fact that will lead to huge job losses in developed countries and
that politicians have to counteract this development through protectionist regulations. The
authors of this paper try to give an overview of the consequences of offshoring and to answer
the question: “Offshoring: Do we have to fear the globalization of human capital?”
This paper is divided into several parts. First comes a clarification of different terms and then
a short overview of the development of offshoring. Then, we analyze the effects of offshoring
on companies, the economy as a whole and on employees in both developed and developing
countries.
We are going to focus mainly on the newest developments of offshoring and therefore mainly
look at the offshoring of services. This also means that we will mainly talk about the US and
India as those countries are the main actors in this area at the moment.
1.1 Term clarification
It is important to differ between the two terms offshoring and outsourcing. Even though they
are sometimes (mistakenly) used synonymously, it is important to differentiate between the
two terms. One differentiation comes from Alan Blinder (2005): “Outsourcing is a common
domestic phenomenon which has nothing to do with either international trade or globalization.
Offshoring means outsourcing the work to firms or subsidiaries employing labor outside the
home country.” According to ebstrategy (2007) “a common misconception is that all
offshoring involves outsourcing. This is not true. While outsourced processes are handed off
to third-party vendors, offshored processes can be handed off to third-party vendors or remain
in-house.”
Offshoring can further be divided into production offshoring, services offshoring and
innovation offshoring (“offshoring”, found on November 2 on www.wikipedia.org ).
Production offshoring involves the relocation of physical manufacturing processes to a lowerOffshoring:
Do we have to fear the globalization of human capital?
Group 12: Jean-Luc Baer, Basile Blancpain, Felix Lademacher, Vladimir Moon 3
cost destination. Examples of production offshoring include the manufacture of electronics
components in Taiwan or the production of apparel or toys in China or Vietnam. Product
design and R&D is harder to offshore because it requires a more specific skill set. The strong
growth of services offshoring is closely linked to the fast spread of telecommunication and the
Internet during the 1990s. Services that can easily been offshored are mainly IT-functions and
back-office processes such as call centers or transaction processing, but over the last years,