Insight into Offshoring

While discussing the (perceived) effects of offshoring economists have started using terms like ‘anxiety’, ‘hysteria’, ‘ludicrous’, and even conjured up images of ‘tooth fairies” and ‘bogeymen’ – and that was just in the academic debate. By presenting an overview of the available data and knowledge on offshore outsourcing and offshoring this report aims to assist in bringing the discussion back on a more constructive track.

In this report we focus on offshoring: the relocation of production abroad irrespective of whether it is done in-house or by a third party and regardless of whether the country is underdeveloped or industrialized. When a company decides to relocate part of its production process abroad by means of outsourcing it will then have to import the goods previously made at home. Hence this type of offshoring (or to be precise offshore outsourcing) will have an impact on the balance of payments. In the case of a company setting up a subsidiary in a foreign country, an example of captive offshoring, such an operation constitutes foreign direct investment. Depending on the type of goods (material/ information) involved, this type of offshoring can