Exposure to the new wave of offshoring: An unemployment perspective

This paper examines the impact of increasing service offshoring in a two‐sector economy. We find that it leads to lower domestic unemployment if the marginal task‐specific offshoring cost in the service sector is sufficiently large. Under this condition, the jobs created due to enhanced productivity outweigh the jobs that are destroyed. The reduction in unemployment increases the cost of hiring domestic workers, thus encouraging firms in the manufacturing sector to increase their offshoring scale and productivity. This, in turn, increases their cost savings and may lead to a further decrease in unemployment. Hence, complementarity between two sectors’ offshoring activities may emerge. We calibrate the model using economic parameters from Belgium, and the calibration results predict varied unemployment trends and impacts on manufacturing‐sector offshoring activities with different task‐specific offshoring cost schedules.     

Offshoring and Outsourcing Potentials: Evidence from German Micro‐Level Data

This paper provides two indicators that measure: (i) offshoring potentials (cross‐country geographical relocation) and (ii) outsourcing potentials (organisational relocation) separately at the level of jobs, occupations, tasks and industries. We use four waves of the BIBB/BAuA Labour Force Survey in Germany and apply principal component analysis based on a large set of potential determinants of offshoring and outsourcing derived from the literature. Our results show significant variation across these levels in the determinants of both dimensions. We provide a comprehensive empirical classification of the determinants of how easily jobs can be offshored and outsourced. This can serve as a basis for further research to investigate the economic effects of job offshoreability.     

Offshore Outsourcing and Non‐production Workers: Firm‐level Relationships Disaggregated by Skills and Suppliers

In analysing the impact of offshoring on the skill composition, previous empirical studies have established that offshoring firms employ more non‐production workers. However, not all non‐production workers are highly skilled. This paper disaggregates non‐production workers into the following three categories: (i) skilled non‐production workers, (ii) unskilled non‐production workers and (iii) non‐production workers with special skills for offshoring and other overseas business management. By linking our offshoring survey data with firm‐level data for Japanese manufacturing firms, this paper finds that the share of skilled non‐production workers tends to be significantly high in offshoring firms but that of unskilled non‐production workers is not. As offshoring has expanded from production to non‐production tasks, this result implies that the distinction between skilled versus unskilled workers becomes critical among non‐production workers. Using our unique data on supplier types in offshoring, this paper finds that the share of non‐production workers for the management of overseas activities tends to be high in foreign direct investment firms and in firms outsourcing to foreign independent suppliers, but not in Japanese firms outsourcing to offshore suppliers located abroad but owned by other Japanese firms. This difference indicates that coordination burdens are likely to be at least partly mitigated by common languages or shared business practices. These findings suggest that offshoring has different impacts on employment depending on suppliers and the worker’s skill. The principal results are confirmed robust even after various firm characteristics are controlled for in panel regressions, though we should not give any causal interpretations.     

Offshoring,Plant Survival and Employment Growth

This paper empirically investigates the effects of offshoring on plant survival and employment growth using data on the Danish manufacturing plants during the period 1995–2006. To control for the potential endogeneity of the offshoring decision, the paper uses instrumental variables and propensity score‐matching approaches. The data allow me to control for the heterogeneity between the units by using firm‐level offshoring activities in different regions and performing the empirical analysis on plantlevel aggregation, which is shown to be of crucial importance. Using firm as a unit of observation, the effect of offshoring is, if any, very small. However, using plant as a unit of observation, there are strong indications that offshoring plays a much larger role for the extensive and intensive margin of adjustments. The results reveal that plants survival prospect is higher if the main offshoring is located in high‐wage countries; lower if it is located in low‐wage countries; and not affected if it is located in medium‐wage countries. Finally, the results also reveal that depending on where the main offshoring is located, the growth rate of low‐skilled employment is 2 to 8 per cent lower in plants of offshoring firms.     

Stakeholder Perceptions of Offshoring and Outsourcing: The Role of Embedded Issues

We contribute to the study of offshoring and outsourcing by examining how stakeholders’ ethical evaluations of these decisions are influenced by both their roles and the issues embedded within the decisions. Although offshoring and outsourcing have been studied from a transactional perspective, the moral issues embedded within these decisions can profoundly affect how the organization is perceived by outside stakeholders. First, we contend that investors use different moral paradigms compared with consumer stakeholders, as a result the stakeholder role an individual occupies significantly influences their ethical evaluation of offshoring and outsourcing decisions. Next, we examine whether embedded issues of product quality and information security increase the moral intensity of offshoring and outsourcing decisions, thereby negatively influencing ethical evaluations. Using vignettes, we find that respon- dents viewed either offshoring or outsourcing less favorably than relocation. Surprisingly, respondents viewed offshoring with data security risks more negatively than offshore outsourcing with quality risks, suggesting that the issue of information security has a greater moral intensity than the issue of product or service quality for both consumer and investor stakeholders. Thus, we show that that embedded issues play a significant role in stakeholders’ ethical judgments of business decisions, such as offshoring and outsourcing.     

The effects of offshoring on employer-provided training

This study examines how offshoring affects employers’ investment in training. Departing from the standard assumption in the literature that low-skilled jobs are transferred to developing countries while high-skilled jobs are still performed in the Home Country, we argue that whether a productive activity is offshored depends on whether its associated occupation is offshorable, regardless of its skill content. Our theoretical model suggests that the offshoring of productive activities involving offshorable occupations raises the wage rate for non-offshorable occupations in the Home Country, and thus reduces the incentive for firms to provide training in non-offshorable occupations. The effects of offshoring on training for offshorable occupations, however, are ambiguous. Based on two new measures of offshoring and data from the National Longitudinal Survey of Youth 1979 (1989–2004), we empirically investigate the relationship between offshoring and employer-provided training in the United States. For non-offshorable occupations, we find that offshoring has a significant negative relationship with the incidence of training, but does not have much, if any, significant relationship with the intensity of training. For offshorable occupations, offshoring does not have any significant relationship with either the incidence or the intensity of employer-provided training. These findings are in line with our theoretical model.     

Operations flexibility and outsourcing benefits: an empirical study in service firms

Outsourcing is a widely extended practice for many industries competing at the global level. Through outsourcing, firms are able to clearly define their core field of activities while transferring non-core activities to organizations enabled to perform them with higher degrees of efficiency. However, outsourcing is not exempted from some risks, especially those derived from process coordination, information sharing, or oportunistic behaviours. Operations flexibility can play a fundamental role in moderating these risks while increasing the benefits from outsourcing by decreasing the level of dependence on the outsourced activities. In this paper, a structural analysis is performed to analyse the relationship between operations flexibility and outsourcing benefits in service firms. Results show that higher levels of flexibility in the informations systems, markets, expansion, and personnel dimensions are directly related to higher outsourcing benefits.     

服务外包与国内就业:基于全球15个国家25个行业的实证分析

利用2000年和2005年的投入产出表数据,计算了世界15个主要发包国25个行业的服务外包率,并建立计量模型实证分析了服务外包对发包国国内就业的影响。研究结果表明,从总体上看,服务外包对发包国国内就业的影响方向是不确定的,正负效应主要取决于服务外包量的大小、外包对国内就业的替代效应和规模效应以及外包环节的类型;对绝大多数国家而言,服务外包的就业效应是不显著的,仅是影响国内就业的弱因素,工资水平和产业规模是影响各国国内就业的重要因素。     

The cost-benefit of outsourcing: assessing the true cost of your outsourcing strategy

To outsource, or not to outsource? This article discusses the factors behind IBM's intensified drive to transfer non-core activities to external suppliers. While highlighting some of the potential pitfalls, it concludes that the benefits of a well-prepared outsourcing strategy go beyond simple cost savings. In the light of the author's own experience, recommendations are made about activities likely to respond well to outsourcing, and advice is offered on the best way to win backing for such moves within a company.     

Another look at offshoring: Which jobs are at risk and why?

Many recent articles regarding offshoring have made sweeping, industry-wide generalizations about the impact of this process, but have not typically addressed the specific types of jobs that are at risk and why. In this paper, we develop a framework that integrates several key variables–the (changing) need for proximity, the regulatory environment, firm-level security and intellectual property rights concerns, and the socio-political context within which the offshoring phenomenon is unfolding–which collectively help explain how vulnerable particular jobs are to offshoring. We use this framework to examine what types of healthcare and information technology jobs are most and least at risk to offshoring, and suggest extending this model to other industries in order to better understand which jobs are most vulnerable to offshoring and why.     

The asymmetric effects of tariffs on intra-firm trade and offshoring decisions

This paper studies the effects of tariffs on intra-firm trade. Building on the Antràs and Helpman (2004) North–South theoretical framework, I show that higher Northern tariffs reduce the incentives for outsourcing and offshoring, while higher Southern tariffs have the opposite effects. I also show that increased offshoring and outsourcing imply a decrease in the ratio of Northern intra-firm imports to total imports, an empirically testable prediction. Using a highly disaggregated dataset of U.S. (the North) imports and relevant U.S. and foreign tariffs, I find robust evidence to support the model's predictions.     

International sourcing of services: the “Homeshoring” alternative

The offshoring and outsourcing of service work from high-wage to low-wage countries has received considerable exposure in the popular press. Here, an alternative to offshoring is presented, called “Homeshoring.” In Homeshoring, a process is decoupled, just as it would be if it were offshored, but the work is sent to low-wage areas within a firm’s own country, rather than to another country. Homeshoring does not represent merely “domestic sourcing,” as it implies a new relationship and a working relationship with governmental economic development agencies. The benefits and disadvantages of this strategic choice are examined.     

Marketing: Who's really minding the store globally?

In today's highly competitive global marketplace, firms have increasingly turned to outsourcing. In fact, it is not just “blue collar” jobs being outsourced, but “white collar” jobs, as well. Even marketing, “the window to the company's worldwide customer base,” is feeling outsourcing pressures. This article takes a look at the corporate implications of outsourcing global marketing functions and reports the findings of a telephone survey conducted among U.S. and Canadian marketing executives. U.S. firms were found to outsource marketing activities more frequently than Canadian firms, often at the expense of control and customer satisfaction.     

The Economic Theory of International Supply Chains: A Systems View

This paper offers an integrated analysis of outsourcing, offshoring, and foreign direct investment within a systems view of international business. This view takes the supply chain rather than the firm as the basic unit of analysis. It argues that competition in the global economy selects supply chains that maximise the joint profit of all the firms in the chain. The systems view is compared with the firm-centred view commonly used in strategy literature. The paper shows that a firm’s strategy must be embedded within an efficient supply-chain strategy, and that this strategy must be negotiated with, rather than imposed upon, other firms. The paper analyses the conditions under which various supply-chain strategies – and by implication various firm-level strategies – are efficient. Only by adopting a systems view of supply chains is it possible to determine which firm-level strategies will succeed in a volatile global economy.     

Outsourcing in Edinburgh and the Lothians

The findings of a survey into the outsourcing activities of large organisations in the Edinburgh and Lothian region of Scotland are reported in this paper. The aim was to carry out a study of outsourcing activity against a theoretical framework of practice and problems derived from the literature. It was found that 70% of the organisations outsourced at least one activity, with cleaning, maintenance, catering, security, and manufacturing/operations being the most common areas, the principal motivation being to improve the quality and cost of the activity outsourced. The criteria used for selecting outsourcing contractors were mainly reputation, cost, previous contacts and technical capability. The main benefits of outsourcing were reduced costs, improved quality of service, increased management focus on core activities, and access to new capabilities. The main problems with outsourcing were loss of control, poor supplier management and problems with confidentiality and opportunist exploitation by supplier. This research was supported by Lothian and Edinburgh Enterprise Ltd.     

Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade

This paper addresses the final steps to global free trade – what they might look like, what sort of political economy forces might drive them, and what the WTO might do to help. Two facts form the point of departure: (1) Regionalism is here to stay; world trade is regulated by a motley assortment of unilateral, bilateral and multilateral trade agreements; (2) this motley assortment is not the best way to organise world trade. Moving to global duty‐free trade will require a multilateralisation of regionalism. This paper presents the political economy logic of trade liberalisation and uses it to structure a narrative of world trade liberalisation since 1947. The logic is then used to project the world tariff map in 2010, arguing that the pattern will be marked by fractals – fuzzy, leaky trade blocs made up of fuzzy, leaky sub‐blocs (fuzzy since the proliferation of FTAs makes it impossible to draw sharp lines around the Big‐3 trade blocs, and leaky since some FTAs create free trade ‘canals’ linking the Big‐3 blocs). The paper then presents a novel political economy mechanism – spaghetti bowls as building blocs – whereby offshoring creates a force that encourages the multilateralisation of regionalism. Finally, the paper suggests three things the WTO might do to help multilateralise regionalism.     

The Pathological Export Boom and the Bazaar Effect: How to Solve the German Puzzle

Germany is the laggard of Europe, yet the country is world champion in merchandise exports. The paper tries to solve this theoretical and empirical puzzle by diagnosing a ‘pathological export boom’ and a ‘bazaar effect’. Excessively high wages defended by unions and the welfare state against the forces of international low‐wage competition destroy too big a fraction of the labour‐intensive sectors and drive too much capital and labour into the capital‐intensive export sectors, causing both unemployment and excessive value added in exports. Moreover, excessive wages induce too much outsourcing of upstream production activities, which implies that export quantities grow too much in relation to value added contained in exports. Finally, excessive wages cause capital flight resulting in a too large current account surplus.     

Hidden Costs of Offshore Outsourcing: an Analysis of Offshoring Decisions

Offshore outsourcing has grown as a form of industrial organisation to increase profitability of firms. However, offshoring may be less lucrative than envisaged, due to the presence of hidden costs. We study the strategic interaction amongst onshore Cournot firms in the decision to offshore when they receive signals about offshore hidden costs. The analysis helps suggest policy implications for countries which are potential offshoring locations. We find the precision of signals and the range of possible hidden costs to be crucial in determining offshoring destinations. Updating of information about hidden costs leads to different equilibria including herding in offshoring.     

离岸服务战略重塑跨国公司的竞争优势

由于信息技术的发展,越来越多的服务产品变成可分割的,从而增加了服务的可贸易性。这种变革促使制造业跨国公司将其服务活动离岸经营或进行国际外包,而服务型跨国公司扩张的可能性也大大增加了。离岸服务战略的实施重塑了各类跨国企业的竞争优势,提高了全球化条件下企业的国际竞争力。     

Jobs and Exposure to International Trade within the Service Sector in Sweden

To establish in which service industries there is international trade (or it may potentially exist), we calculate locational Ginis for different industries. The basic idea is that from this measure of regional concentration of different activities within a country we can identify industries where there appears to be regional trade, and hence also a potential for international trade. Based on our method, we find that: (i) the number of employed in tradable service appears to be at least as large as in the manufacturing sector, (ii) tradable service is much more skill intensive than manufacturing, and (iii) lately, the employment in tradable service has increased substantially. We argue that the last mentioned result is consistent with the substantial growth of skilled labour in Sweden since the mid‐1990s (Rybczynski effect) and factors leading to increased relative demand for skilled labour. Particularly, increased competition from and offshoring to low‐wage countries seem recently to have had a considerable impact on the creation of skilled jobs and the displacement of less skilled jobs in the tradable sector in Sweden. Furthermore, we apply a similar method as for industries to identify tradable occupations. Using our classification of tradable industries and tradable occupations in a Mincer type wage equation, we find that workers in such industries and occupations receive a wage premia of 12–13 per cent.