Often confused with the similar term outsourcing, offshoring is moving jobs from one country to another in order to save costs on employee wages. As CIMA online puts it, service sector offshoring is a relatively new phenomenon that has been growing quickly since the early 2000’s.
In the US, the average accountant will earn about $63,000 per year while in India an accountant with the same qualifications will only make about $5000. It is easy to see why most firms would prefer the Indian accountant. One of the leading technology firm’s CEO stated, “If you can find high quality talent at a third of the price, it’s not too hard to see why you do this [send jobs offshore].” This is an easy way for firms to gain a business advantage over the competition.
According to ACCA online, government intervention and market fluctuation are the two main factors that influence offshoring. Another advantage of using foreign workers is that they know the tastes of local customers, which make them ideal for sales in their native land. In China and India, the consumer class is rapidly growing which makes it highly appealing for overseas companies looking for cheap labor in a large market. Governments also offer tax incentives to companies who offshore US and European jobs. Some countries also place restrictions on technology and wage to ensure that their workers receive fair treatment and are not taken advantage of by foreign companies looking to minimize costs.
Immigration and tax reform in the US is accelerating offshoring rates. Tax breaks are given to US multinational corporations that participate in offshoring. According to ACCA, some firms use of US immigration policy to their advantage by using visa restrictions to facilitate overseas work.
The structure of society and technology has also contributed to the rise in offshoring. Costs for remote business have decreased due to improvements in software, telecommunications and Internet.
CIMA states that recently instituted employment norms and policies have enabled businesses that once were heavily reliant on foreign workers to bring back to their US counterparts.