The Impact of Production Offshoring on Labor in Developing Countries

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The Impact of Production Offshoring on Labor Force in Developing Countries

Name: CHEN, Jiangying
Student ID: 08577449
Date: 30/11/2010

Table of Content
1. Introduction...…………………………………………………………3 2. Definition of Core Concepts…………………………………………..3 a) Production Offshoring.…………………………………………...3 b) Labor Force………………………………………………………4 3. Beneficial Impacts……………………………………………………4 4. Harmful Impacts………………………………………………………7 5. Personal Opinions…………………………………………………….9 6. Conclusion…………………………………………………………...10 7. Appendix…………………………………………………………….11 8. Reference…………………………………………………………….16

Introduction
This paper aims to demonstrate production offshoring’s two-sided influence on the labor force in developing countries from an objective point of view. Since the 1960s, companies in the developed world have been transferring their production to the lower-cost developing world. This was made possible by the development of transportation and communication channels, especially the World Wide Web, all of which have reduced the costs of offshoring by a substantial amount. In recent years, with no signs of slowing down, offshoring has been attracting lots of attention from the media and the general public for its double-edged influence on labor force in the developing countries. The most significant and best-studied ones are caused by production offshoring with local contractors, which this paper will mainly focus on, instead of service offshoring, innovation offshoring or building companies’ own factories abroad. The first part of the paper will provide the definition of core concepts to facilitate later discussion. Then the benefits and harm brought by production offshoring will be discussed in the second and the third part. Finally, the paper concludes the discussion by providing opinions regarding whether these debates are of value or not.

Definition of Core Concepts
1. Production Offshoring
Also known as physical restructuring, production offshoring means moving part of or all of the physical manufacturing process of products to another country for the lower production costs brought by lower wage rates, cheaper raw materials and looser regulations. It differs from outsourcing in the ways that production is not necessarily performed by another company, but must be moved to another country, leading to the discussion of its impact on labor force in the developing world.

2. Labor Force
Labor force is defined as “the suppliers of labor” of working age who are currently employed or actively seeking jobs. Usually, a nation’s minimum working age is sixteen to eighteen. However, the differences of this minimum across different countries, especially the permission of child labor in some poor countries such as Bangladesh, have presented a huge challenge to multinationals engaging in production offshoring. Besides, labor force can also be divided into skilled and unskilled labor. Skilled labor are people possessing particular knowledge and skills relating to the business or production, such as engineers and doctors. They require higher wage rates and constitute a smaller part of the whole labor market. Unskilled labor does not have professional knowledge, but instead, perform routine production tasks requiring low technical skills. Their wage rates are relatively low and they are the majority of the labor force. Though the line between skilled and unskilled labor is being blurred by the popularization of education, production offshoring still has quite different impacts on these two different categories.

Beneficial Impacts
To developing countries, the trend of production offshoring means more foreign investments, which will usually speed up the development of local economy and the transformation of local industries into a higher degree of sophistication. At the same time, it is also benefiting the local labor force in the following ways: 1. Higher Relative...
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