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Concept
Offshoring
Summary
Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state governments may also employ offshoring. More recently, technical and administrative services have been offshored.
Offshoring and outsourcing are not mutually inclusive: there can be one without the other. They can be intertwined (offshore outsourcing), and can be individually or jointly, partially or completely reversed, involving terms such as reshoring, inshoring, and insourcing.
Offshoring is when the offshored work is done by means of an internal (captive) delivery model, sometimes referred to as in-house offshore.
Imported services from subsidiaries or other closely related suppliers are included, whereas intermediate goods, such as partially completed
cars or computers, may not be.
Lower cost and increased corporate profitability are often the motivation, economists call this labor arbitrage. More recently, offshoring incentives also include access to qualified personnel abroad, in particular in technical professions, and decreasing the time to market.
Jobs are added in the destination country providing the goods or services and are subtracted from the higher-cost labor country. The increased safety net costs of the unemployed may be absorbed by the government (taxpayers) in the high-cost country or by the company doing the offshoring. Europe experienced less offshoring than the United States due to policies that applied more costs to corporations and cultural barriers.
After its accession to the World Trade Organization (WTO) in 2001, the People's Republic of China emerged as a prominent destination for production offshoring. Another focus area has been the software industry as part of global software development and developing global information systems. After technical progress in telecommunications improved the possibilities of trade in services, India became one prominent destination for such offshoring, though many parts of the world are now emerging as offshore destinations.
Official source
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