Many businesses have turned to offshoring as a way to boost profits while
many politicians believe that the gain is made only at the unacceptable cost of
American jobs. MGI's latest research and analysis offer a new perspective:
offshoring is as beneficial to the U.S. as it is to the destination country,
probably more so.
The most obvious benefits of offshoring accrue to businesses and English-speaking destination countries. Lower wages in foreign countries translate into significant savings and, often, improved quality. A software developer in the U.S., for example, costs $60 an hour whereas one in India only costs $6 an hour. This and other benefits could translate to a net impact of a 50 percent increase in profits for American businesses.
Destination countries see increased investment and job creation through offshoring. India, for example, gains in net benefit at least 33 cents for every dollar of spend offshored to its country.
Impact on the United States
While Forrester, a technology research and trend analysis firm, predicts the loss of some 3.4 million jobs to offshoring in the U.S. by 2015, MGI's analysis shows that the United States has much more to gain.
Offshoring will allow the U.S. to capture economic value through multiple channels:
Reduced costs - Savings from reduced costs means more
savings, which can be passed to consumers or to investors to reinvest.
New revenues - Offshoring creates demand in
destination countries for U.S. products, especially for high tech items.
Repatriated earnings - Several providers serving the
U.S. market are incorporated in America, which means they repatriate their
earnings back into the U.S.
Redeployed labor - U.S. workers who lose their jobs to offshoring will take up other jobs, which will in turn generate additional value for the economy.
Of the $1.45 - $1.47 of value MGI estimates is created globally from every dollar spend a domestic company chooses to divert abroad, the U.S. captures $1.12 - $1.14 while the receiving country captures on average 33 cents. In other words, the U.S. captures 78 percent of the total value.
Addressing the disruption of displacement
Whatever the substantial benefits of offshoring, the short-term pain of job displacement must be addressed. Targeted insurance products managed by businesses could be one way to lessen the pain to workers. This approach could help provide wages for those who lose jobs because of offshoring for an acceptable period of time.
Given the large surpluses generated from offshoring, programs to address the impact on workers are feasible. This will help create win-win solutions and ensure that everyone benefits from a more competitive and healthier global economy. Launch this perspective (PDF - 725 KB)
