Using a business function framework to examine outsourcing and offshoring by US organizations

There is an ongoing debate in the United States and elsewhere on the effects of outsourcing and offshoring on employment and wages, yet little is known how U.S. enterprises have restructured their organizations by externalizing business functions domestically and internationally. This paper presents the results from a pilot survey that uses a business function framework to collect information about the domestic and international sourcing practices of United States organizations. Our results suggest that offshoring is not as pervasive as might be expected and appears to be most common in large goods - producing companies. Offshoring is spread across all business functions and international sourcing is more commonly from foreign affiliates than in dependent contractors. Perhaps most surprisingly, most offshoring is to countries with costs that are the similar to the United States. About two thirds of internal domestic employment is in the primary business function, and the distribution of employment by business function is roughly similar across industry groupings. Wages show clear variation across business functions. We find that international sourcing is positively related to percentage of workers in high wage jobs, suggesting that offshoring is complementary to domestic activities and may substitute for low wage jobs.