Outsourcing and Offshoring: Key Trends and Issues

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Executive Summary................................................................................................................. 3

Introduction .............................................................................................................................. 5

1

Offshoring as International Trade and FDI ................................................................... 8

2

Corporate Strategies and Business Models .............................................................. 18

3

Impact on Jobs and Professions................................................................................. 27

4

Conclusions and Implications for Emerging Markets............................................... 33

References.............................................................................................................................. 36

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3

4

1

The US is used as a major example for expositional convenience, but there are plenty of replays of similar scenes in the UK and other OECD countries. 2

Such concerns provoked a flurry of legislative proposals in 34 US states, all intended to restrict offshoring in state contracted work (UNCTAD 2004).

5

Location Decision

Corporate Boundary Decision

Domestic Domestic Divisions/ Affiliates 1 Source from Domestic Suppliers

Overseas Establishing Foreign Affiliates (FDI and trade) 5 Source from Foreign Suppliers (International trade)

Insource

4 3 2

Outsource

Offshoring

Outsourcing

3

For example, Gecis Global, General Electric’s captive outsourcing operation in India, was sold and is known as Genpact, with 19,000 employees and $500 million annual revenue.

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7

4

It is possible to use the input-output table to separate out intermediate use and final consumption in international trade. For example, in the UK in 1995, 97 per cent of business services were accounted for by intermediate imports used by business firms. The share for manufacturing sectors was much lower, at

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1.1 International Trade and FDI in Services and Manufacturing

55 per cent (Abramovsky, Griffith and Sako 2004, p.11). Thus, comparing the extent of offshoring in business services and manufacturing just by examining international trade data requires caution.

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1.2 ‘Tradability Revolution’ in Services

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1.3 Global Patterns in Services Trade and FDI

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Trade in Computer and Information Services 2003
12,000

7,000 million US$

Export 2,000 Import Net
Po la nd ch R ep ub lic C ze In di a Ja pa n hi na an y K S ia R us s l Fr an ce G er m un ga ry H Br az i U U

-3,000

-8,000

source: IMF Balance of Payment Statistics ESDS International, Oct. 2005

Trade in Business, Professional and Technical Services 2003
55,000 45,000 35,000 25,000 million US$ 15,000 5,000
S K ce a n il ry y na an pa si az U U di ga nd lic a

C

Export Import Net
an ub R ep In hi Ja us Br m un Po Fr C la

-5,000 -15,000 -25,000 -35,000 -45,000

er

R

G

H

source: IMF Balance of Payment Statistics ESDS International, Oct. 2005

15

C

ze

ch

16

17

5

It is government offshoring that has encountered the strongest opposition in the US, during the months leading up to the November 2004 presidential election. See UNCTAD (2004, pp.210) for a list of proposed state legislation restricting government offshoring. 6

This section focuses primarily on strategic decision-making by business corporations. To the extent that public sector organizations and private business firms are driven by similar considerations for efficiency and cost reduction, the same analysis would apply to public sector organizations. Moreover, offshoring is a political issue, requiring not only governments but also business corporations to integrate their market and non-market strategies (Baron 1995). For instance, Nike initially considered labour standards at their suppliers they...
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