In the debates leading up to the previouslyheld Presidential election, the issue of offshoring of US jobs was a major topic discuss byboth running candidates. So in seeing this Iwanted to learn more on the topic thus learningwhy each candidate were so concerned withthis issue.
According to Plunkett et al. (2012) “Offshoringrefers to the tendency among manyU.S., Japanese and Western European firms tosend both knowledge-based andmanufacturing work to third-party firms inother nations. Often, the intent is to takeadvantage of lower wages and operating costsin such nations as China, India, Hungary, thePhilippines and Romania.”
To take advantage of low wage rates andproduction cost. To gain use of experts knowledge andeducation. To gain access to International Markets
Low cost in wages and operation. Greater flexibility in reallocating capital. Increase productivity. provide opportunities for firms to becomefamiliar with cultures and consumptionpatterns of people in other countries. enhance the quality of products and improvecompetitiveness due to availability ofspecialized talents in other countries.
Loss of US Jobs thus increasing unemploymentrate downward pressures on American wages discouraged workers may become a financialburden on society. Client country may lose their economicadvantage since the secret of their successsometimes have to be shared.
In regards to the American economy offshoringseems to have impacted the economy bothpositively and negatively. A study in theMckinsey Quarterly found that the US gainfrom IT ofshoring in 3 ways: Cost savings, which create additional value inthe US economy New revenues from firms buying newequipment from American companies. Repatriated Earnings
Offsshoring has its positive effect but it seems thegovernment is more concern about the negativeeffects. These effects include Increase in the US unemployment Rate Cheating of the tax system by offshoringCompanies
Microsoft is one of the key company that practiceoffshoring. Microsoft has partner with many Indiancompanies such as HCL technologies and Satyamcomputer services. The goals of Microsoft was todevelop service offerings, improve marketingstrategies and widened their customer base. Howeverby doing this microsoft has Cheat the U.S tax system.The article offshore tax avoidance gimmicks mustend. (2012). States that, Microsoft used a process called"transfer pricing," to shift $8 billion in income fromproducts developed here in the United States tosubsidiaries based in Singapore and Ireland.
The Government should create a tax policy thattax companies as they go offshore. Implementing Serious Penalties such as finesfor company who cheat the Tax system. Companies should dedicate part of the profitthey earn for retraining of workers they laidoff.
Offshoring seems to be a major problem for theUS. Efforts to stop offshoring have been futilesince it contribute greatly to the U.S people.The U.S people are able to get good qualitygoods and services at low prices because ofoffshoring. However Offshoring overtime hasbecome less advantageous since wages andoperating cost have been rising significantly inthe major countries which companies offshoreto, which are China and India.