Offshoring: benefits & risks
Offshoring
Human Resource Management, BBA440
September 17, 2013
Offshoring is the practice of relocating business processes to lower cost locations outside the country of origin. This is not a new practice for companies in the United States. Moving business processes to another country to take advantages of lower operating costs and cheap labor seems like a great idea. However, the dilemma for a company is whether the benefits of offshoring outweigh the risks. This dissertation will begin by briefly reviewing the history of offshoring. Next, it will examine the various advantages and disadvantages associated with offshoring. Thirdly, it will explore the growing trends of backshoring and nearshoring in situations where offshoring has been unsuccessful. Lastly, this paper will look at a simple paradigm for companies to follow to avoid offshoring failures. The offshoring era began in the 1960s when manufacturing industries in developed countries started sending out work to factories in developing countries such as China, India, Taiwan, and Malaysia. Then, offshoring really took off in the late 1970s. Manufacturing companies began moving to other countries where they could find cheaper labor costs. One of the first large businesses that moved its manufacturing overseas was General Electric. According to Jack Welch, the CEO of General Electric at the time, “companies should seek to lower costs and maximize profits by moving operations wherever is cheapest” (The Week, 2011). He further goes on to say that “ideally, you’d have every plant you own on a barge to move with currencies and changes in the economy” (The Week, 2011). In the 1990s, with the development of the Internet, tech support, call centers, and other such jobs started moving offshore as well. The Internet boom also erased geographic boundaries, which allowed companies to have instant access to educated workers all over the world. This permitted big service companies and small
Human Resource Management, BBA440
September 17, 2013
Offshoring is the practice of relocating business processes to lower cost locations outside the country of origin. This is not a new practice for companies in the United States. Moving business processes to another country to take advantages of lower operating costs and cheap labor seems like a great idea. However, the dilemma for a company is whether the benefits of offshoring outweigh the risks. This dissertation will begin by briefly reviewing the history of offshoring. Next, it will examine the various advantages and disadvantages associated with offshoring. Thirdly, it will explore the growing trends of backshoring and nearshoring in situations where offshoring has been unsuccessful. Lastly, this paper will look at a simple paradigm for companies to follow to avoid offshoring failures. The offshoring era began in the 1960s when manufacturing industries in developed countries started sending out work to factories in developing countries such as China, India, Taiwan, and Malaysia. Then, offshoring really took off in the late 1970s. Manufacturing companies began moving to other countries where they could find cheaper labor costs. One of the first large businesses that moved its manufacturing overseas was General Electric. According to Jack Welch, the CEO of General Electric at the time, “companies should seek to lower costs and maximize profits by moving operations wherever is cheapest” (The Week, 2011). He further goes on to say that “ideally, you’d have every plant you own on a barge to move with currencies and changes in the economy” (The Week, 2011). In the 1990s, with the development of the Internet, tech support, call centers, and other such jobs started moving offshore as well. The Internet boom also erased geographic boundaries, which allowed companies to have instant access to educated workers all over the world. This permitted big service companies and small
References: Anderson, Todd. (n.d.). “The Advantages of Offshoring.” Retrieved from www.ehow.com/print/info_8128732_advantages-offshoring.html Bohlander, G, Snell, S. (2013). Managing Human Resources (16th ed, pp.19-20). Mason, Ohio: South-Western. Green, Aaron. (2007, September 17). “Part 1: Offshoring basics: definitions, benefits, and challenges.” Retrieved from www.boston.com/jobs/on_staffing/091707.shtml Malone, Scott. (2011, June 28). Companies Moving Jobs To U.S. From China to Avoid Inflation. Huffington Post. Retrieved from www.huffingtonpost.com/2011/06/28/companies-moving-jobs-from-china_n_886188.html The Week Staff. (2011, March 18). Where America’s jobs went - The Week. Retrieved from http://theweek.com/article/index/213217/where-americas-jobs-went#