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Offshoring: Value Creation through Economic Change

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  • Diana Farrell

Abstract

In this essay, I analyse the economic and managerial dimensions of offshoring, drawing from recent research by the McKinsey Global Institute. I argue that offshoring, like other forms of trade, creates enormous value for both companies and the economy as a whole. However, in the case of countries with less flexible labour markets such as Germany, findings are more nuanced. While the potential cost savings for companies from offshoring appear impressive, our research suggests that companies are leaving billions of dollars behind when they offshore. We propose several ways companies could make capital-labour trade-offs to create new markets and services. By maximizing gains from offshoring, companies can both cut costs and generate revenue. Given the benefits offshoring, the challenge is how to make the transition to a global economy less painful for workers and increase the participation in the wealth creation. Hence, I also identify options to help policymakers and companies manage the changes offshoring requires. Copyright Blackwell Publishing Ltd 2005.

Suggested Citation

  • Diana Farrell, 2005. "Offshoring: Value Creation through Economic Change," Journal of Management Studies, Wiley Blackwell, vol. 42(3), pages 675-683, May.
  • Handle: RePEc:bla:jomstd:v:42:y:2005:i:3:p:675-683
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    1. Lori G. Kletzer, 2001. "Job Loss from Imports: Measuring the Costs," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 110.
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