Offshoring Decisions

Updated: Sep 25



The United States is at an important crossroads for economic policy. Many jobs are being lost to offshoring. Yet, many more job losses are due to technology. So how can governments and companies decrease the negative effects of offshoring? This video will help…






Transcript


Imagine yourself sitting with three friends discussing your future careers. Research shows that as many as 25% of American jobs could be offshored in the years ahead and that over 50% of low-skilled jobs will eventually be replaced by artificial intelligence. Will you be the only one of your friends left with a paid U.S. position? Probably not.


Offshoring jobs means moving work that was previously completed in one country to another country, and the flow of jobs out of the U.S. has created considerable fear over the last few years. Fortunately, this fear has motivated better data gathering and analysis. Unfortunately, the fear—rather than the data—often drives our policy decisions.


US Offshoring


The United States is at an important crossroads in international economic policy. On the one hand, American companies are blamed for U.S. job losses and wage reductions because they hire low-wage workers in India, China, and Mexico. In their defense, these companies argue that they have to take advantage of lower labor costs in emerging markets to stay competitive. But, this does perpetuate a race to the bottom.


On the other hand, offshoring of American jobs is likely the smallest contributor to overall lower wages for American workers. In fact, most job loss in America is due to technological change rather than offshoring… and this is even more likely to be the case in the future.


Making the Decision to Offshore


So, as a manager, how would you make offshoring decisions? Calculating the profit potential for your shareholders is simple, but not sufficient. As a conscientious manager, you’ll need to consider other stakeholders. Local suppliers, employees, and the communities in which you operate, will all be dramatically affected by your decision.


Failing to address concerns from these various stakeholders can make implementing your offshoring strategies difficult. You might get pushback from unions determined to protect their jobs, business associations seeking to safeguard a local market position, or employees with sinking morale and failing loyalty.


The Open-book Approach


Many of these difficulties can be avoided by taking an open-book approach. Show stakeholders the facts they need to see to remain viable—that your organization must offshore some of the work being done. Then illustrate the grisly alternative: competitors may close in, grab the arbitrage opportunity, pass on savings to their customers, and squeeze out your company.

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