Offshore outsourcing, or “offshoring”,
refers to outsourcing to firms in foreign countries,
often to take advantage of labor arbitrage. In the
past 10 years, business process outsourcing contracts
have increasingly been given to firms in developing
countries. Typically educated workers in developing
countries, such as India or China, work for a much
lower wage than do similarly educated workers in developed
countries, such as Japan. Savings from the lower wage
rate must exceed the increased costs of management
and risk associated with offshore outsourcing for
it to be economically viable.
Offshore outsourcing has recently
become a hotly-debated issue in the national media.
When the American economy began to pull out of recession
in 2001, unemployment did not decrease as expected.
Offshore outsourcing was blamed as a contributing
factor to this “jobless recovery”.
Information Technology was a particularly soft sector,
and many American programmers lost their jobs to lower-paid
foreign counterparts. Many economists however have
recently conjectured that the higher-than-expected
unemployment numbers were not the result of offshore
outsourcing, and that offshore outsourcing has actually
had a positive impact on the American economy.
Offshore outsourcing has become one
of the most important sources of revenue
for the developing countries. Today all major international
companies like IBM, Microsoft, Hewlett Packard, and
Novell choose to get services from sub-contractors
in these countries or move many development and support
jobs there. This is because the cost of business processes
are reduced considerably which increases the profits
of the concern.
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