Question

What do you think are the effects of offshoring on the U.S. economy?

Answer 1

The term “Off-shoring” refer to outsourcing the activities of an organization outside the home countries.

In U.S. the cost as well as standard of living is high. It also means the cost of equipment; labor wages will also be high. This motivates companies to outsource the production as well as service to a low cost country such as India. For example, Infosys, one of the world’s largest technology companies and providers of IT services to many Fortune 100 companies, is located in Bangalore, India. Recently, US law firms as well medical industry have started outsourcing low end works to low cost countries.

Though offshoring provides several benefits to the organizations including reduced operational cost, efficient production by the skilled workers, and ability to focus on their core competencies. However, the increasing trend of offshoring might have adverse impact on the US economy. Cost savings realized by the individual American companies might not have a significant impact on the national economy. Moreover, if the trend of offshoring gets widespread in more sectors, especially in which the US is a net exporter, the country’s net income would be minimized due to terms of trade effects. Besides, the rising cost of offshoring due to the initial setup cost, trainings, regulations are also a major concern, due to which some of the major companies have started to restrict their offshoring practices. Hence, it can be concluded that in long run offshoring might hurt the US economy.