The Death of Offshoring

by Jessica Lawson

Ten years ago, the fad for business was to outsource or pick up their shop and move to China. Recent trends are showing that political and economic factors are pushing firms to take the opposite action and move their companies or outsourcing back to home. According to the Economist, “offshoring never had as direct or dramatic of an impact on employment in America and Europe as was widely believed.” It was not until the economic crisis that employment levels began to drop across the rich world.

To protect domestic firms, foreign governments (especially those in emerging markets) are using nontariff barriers to trade to drive out foreign competition as much as possible. Antidumping duties, import licenses, and rules of origin requirements punish foreign entrants into the market in order to obtain wider market access for domestic producers. In the case of Argentina, foreign companies seeking market access in this Latin American company are required to apply for import licenses, which are by no means guaranteed. In addition, some companies are required to export the same value of goods that they import. Porsche and Nike now make leather and wine in the country to sell their cars and sporting goods to Argentines. The cost of market access is incredibly high and causes companies to ponder if access is really worth it. In situations as these, the cost of offshoring is much higher than the benefits.

Additionally, the cost of labor in popular offshoring countries has dramatically increased, and as seen with Boeing’s production of the 787, costs are rising in the shipping industry and it is just no longer effective to build machinery in multiple countries.

With offshoring, exchanges of technology and education have increased skill levels in poorer, less developed countries. While firms coming home will make Americans happy in the short run, they will not be facing a global labor market that is now more competitive than before.