Off-Shoring Benefits to the Economy

Introduction

The business process of off-shoring is happening all over the world. “Offshore” is a term that is used to refer to geographical location where work is actually performed. It is used in relation to outside countries. Off shoring then means a company in one country lets a part or some parts of its work done by another company abroad (Green, 2007, para2). It is the course of transferring tasks inside business operations and taking them to be done by workers abroad. Many companies find it easy to send their work to be done where labor is cheap. Off shoring is closely related to outsourcing, except that outsourcing is where a company seeks the services of another company locally. For instance, a company can contract another to deal with its human resource recruitments. This allows it to concentrate on its core business. In most cases outsourcing is restricted within a country, but off shoring focuses on relocating some of its activities to other nations where cost of production is low (Green, 2007, para2-4). Off-shoring is mostly used by software companies and companies that are engaged in production of goods and services.

It is important to understand that as much as off-shoring has some motivating benefits, not all kinds of work can be off-shored. Most companies would not off-shore their core business activities; repair of broken machinery or procurements of businesses materials and training of personnel requires the physical presence of relevant professionals (Farrel, 2004, para8). This paper looks at the benefits of off-Shoring to the economy of any given country.

The benefits of off shoring

By engaging in off-shoring, companies and businesses get access to highly skilled and experienced workers abroad. This ensures that their jobs are done by skilled personnel who may not be found where the companies and businesses are based. It is argued that companies can save on the cost and time. Also in most cases the off-shore employees are often more committed and usually they appreciate the work given to them.

Off shoring will lead to getting rid of cost of recruiting new employees and speed up recruitment. There are certain positions at work places that can take very long before they are filled, this especially applies to international positions. Using off shoring companies will limit recruitment time and financially save the companies on the cost of running human resource department, training of new employees, and also motivating the workers. This will in turn increase production since much of the productivity time will not be lost.

Business needs vary from time to time. There are periods when businesses are low and when they are up in terms of financial performance. Off-shoring will ensure a company gets some of its work done whenever need arises instead of reducing headcounts during low performance and increasing them when businesses perform highly, in other words the business reduces rate of human resource turn over. This ensures that there are no mass lay offs of employees in companies. The management is able to plan its activities well without many disruptions as may be in cases where business is performing poorly. This also eliminates the cost of retaining excess employees when workload goes down. A company may be based in a country where cost of labor is high, such business entities may use off shore technique to access cheap labor in other countries. This can be done either by locating most or just few of its operations to such countries with cheap labor supply.

Research and the development of new technologies are going on around the world at a fast rate. This has led to improved quality of manufactured goods in the world market. Companies and business entities may wait to import the new technologies, however, the cost involved may be higher than they can afford, and also it may take time before new technologies reach some parts of the globe. The business entities may consider relocating their operations or part of its production to where the new technologies are being produced cheaply. This helps the entities to produce high quality goods that can compete well with other goods in the world market.

Access to foreign markets is also advantage of off shoring. The objectives of accessing foreign markets are to evade tariffs, duties on imports, and also to stay safe from trade barriers imposed by the government of the country where the companies conduct their core businesses. The companies may also need proximity to suppliers of their products and customers and most importantly to get to understand the market and how customers respond to different products in the market. This may also offer an opportunity for a business to understand how its products are doing abroad thereby giving room for continued growth and necessary improvements as per the market situation.

More work can be done by engaging in off-shoring. The companies or businesses can off-shore activities that they do not do occasionally; this also allows them to concentrate on their core businesses, moreover, it also contributes to social capital between the business entities especially the suppliers and the customers. This will impact positively to the company’s financial perfomance (Overby, 2007, p1).

Immigration of workers to go work overseas is costly and takes time. A person going to work in a foreign country requires a work permit for working in the destination country, besides there are other immigration requirements that involve huge finances. The companies can avoid all these by off-shoring their work. This would also lessen the cost as the work is done by natives of the country where the work is sent. In most occasions the immigrant workers do not demand high payments in terms of salaries and thus off-shoring will help a company in cutting its salary budget thereby increased profits.

Why the government cannot put barriers to off-shoring

When companies engage in off shoring, especially those which relocate either part of their production or totally relocate to other countries, such companies always remit their profits to their home countries. Through this, the governments are able to get more foreign currencies hence enhancing their powers to import.

Companies relocating some of their production services to less developed countries help to grow the economies of those countries. This also increases the buying power of those citizens since goods and service will be produced and sold to them locally by the foreign companies. Since the off-shoring companies use local workers unemployment is reduced in the countries where off-shored work is done. People will get jobs and therefore, raise their expenditures. The long term impact will be a rise in standard of living.

The off-shoring companies from developed nations may be forced to send some of their technologies and know-how to the countries where work is off-shored in a bid to ensure they get quality services, the employees doing the off-shored work will be trained on such new technologies; this is away through which the countries where work is done get new and upgraded technologies.

Conclusion

Off-shoring is a way through which companies and business entities transfer some of their internal activities to be done by work force abroad. It may also involve the relocation of a business entity to areas of low cost production and easy access to the market.

Off-shoring is a production strategy used mostly by software companies. India is known to be the country that makes use of off-shoring most. Developed countries also engage in off-shoring more than developing countries, in fact off-shores are always in the developing nations (Hunter, 2006, p80)

Off-shoring reduces costs and also enables the companies to concentrate on their core businesses. It also helps to grow the economies of off-shores since more jobs are created, foreign exchanges are earned by the off-shore countries and also living standards are raised. It is worth noting that as much as off-shoring has some motivating benefits, not all kinds of work can be off-shored. Most companies would not off-shore their core business activities; repair of broken machinery or procurements of businesses materials and training of personnel requires the physical presence of relevant professionals. As much as off-shoring has its benefits, it is not easy and should not be approached from the view of reducing cost. Its benefits may be realized after some times (Harrison, 2009, para1-5)

Works Cited

Farrell, Christopher. “Giving Thanks for Offshoring.” Business week, 2004. Web.

Green, Aaron. “Offshoring basics: definitions, benefits, and challenges.” Boston.com, 2007. Web.

Harrison, Ann. “Offshoring Good, Bad for Workers.” The economist Newspaper ltd, 2009. Web.

Hunter, Ian. The Indian offshore advantage: how off shoring is changing the face of HR. Publishing, Ltd., 2006.

Overby, Stephanie. “Secrets of off shoring.” CIO, 2007. Web.

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