Offshoring – a good or bad thing?

Whilst much is often made of the perceived negatives of offshoring, mainly loss of local employment or employment opportunities, very little is said about its benefits. Both the 2007 OECD report Offshoring and Employment, Trends and Impacts and the 2012 University of Melbourne paper ‘Developing an Asia Capable Workforce’ paper found that it is difficult and complex to determine whether offshoring produces a net gain or loss to the country offshoring. Some of the positive effects of offshoring however included:

Growth in consumer incomes

The reduction in the cost of goods and services which flow from the saving from offshoring increases local consumer incomes. Growth in incomes then creates more consumption and/or savings. Growth in consumption increases local employment where the goods/services consumed are locally produced. However, the jobs that may be created can be in sectors different to those from which the jobs were offshored.

Improved competitiveness

Businesses which save money from offshoring can pass on the savings to their customers, and thereby become more competitive. Alternatively, they may choose to re-invest those savings into the business to expand and generate more local employment typically in more highly skilled jobs.

Export Growth

Growth in jobs and income in the country providing the offshore staff increases their consumption of our goods and services. Our goods and services are also more competitive because of the cost savings achieved from offshoring.

Control of Inflation

Reduction of costs is often the principal reason for a company to offshore services. This reduction in costs assists better control of local inflation and slows consumer price rises. This in turn keeps interest rates low and stimulates investment and job creation.

Growth in tax revenue

Reducing costs and improving competitiveness ultimately results in more profitable businesses which pay more local taxes.

Greater Asian engagement and understanding

By engaging with an Asian workforce, this allows local business to better understand Asia, its people, culture and opportunities. This can also assist businesses in understanding how to sell their products/services into the Asian marketplace.

So it can be seen that while it is easy to simply suggest that offshoring is a bad thing, the issue is in fact far more complex. Whatever the situation and like it or not, we are now working in a global economy with a globally accessible labour pool. The ease of access to this international labour will only improve with further advances in technology. Whether we choose to embrace and benefit from this or be fearful of and resist it may well have a significant impact on the future prosperity of our country.

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