Offshoring Drivers

DRIVERS OF OSSHORING:

http://ilo.org/wcmsp5/groups/public/---ed_emp/---emp_elm/---analysis/documents/publication/wcms_113922.pdf

A major driving force behind offshoring are international differences in factor prices (see e.g.

Nunnenkamp, 2004; Kohler, 2002). Offshoring firms could be seen as efficiency seekers (in line with the internationalization theory of Dunning, 1981 and 1993)since they relocate their production abroadto take advantage of better or less costly resources and assets. This potential cost advantage isfundamental in explaining offshoring decisions

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Offshoring labour-intensive production stagesto a low-wage country can hence be seen as a “vehicle for arbitraging” on these differences.

Low-wage seeking

Get access to more competencies, expand capabilities and exploit new business

opportunities

Cope with peak period in demand and exploit economies of scale for specialised services.

As trade costs fall, fragmentation of production becomes feasible :

• Reduction of trade barriers

• Reduction of transportation costs

• Technological change :

teleworking, call-centres, software production and information-processing work .--»

http://www.oecd.org/sti/sci-tech/35644921.pdf

Motivations for large firms to relocate abroad:

• Reduce cost (36% of respondents)

• Proximity to client (17%)

• Increase sales

• Improve productivity

• Get access to a foreign market

• Improve service quality

• Increase competencies …

• Others…

Motivations for SME to relocate abroad: pricing, technology, conception, marketing, production …

Specific criteria involved in the evaluation of relocation of a headquarter

http://cs.stanford.edu/people/eroberts/cs201/projects/2003-04/offshoring/economics.html

Offshore labor has proven to be dramatically less expensive. While an average IT worker in the US makes $70,000 per year, an Indian IT worker makes just $8,000 per year. Of course, communication, training and other...