Running head: OFFSHORING FOR CONSUMER DEMAND

Offshoring for Consumer Demand

Eric Henderson
Siena Heights University

OFFSHORING FOR CONSUMER DEMAND

Offshoring for Consumer Demand

Throughout the past few decades, companies have been looking for ways to become more
efficient and innovative in order to increase their competitive advantage. For this reason, a small
number of large companies decided to move their operations overseas to produce their products
and sell them back in the United States. They decided to produce their products in other countries
because they found it was cost efficient to do so by paying less in labor expenses and avoiding
the tax rates in the United States. In doing so, reducing their costs gave these companies the
opportunity to produce a quality product, while innovating their product as well. This provided a
brighter future for the company because they now focused on the sustainability and future of the
company. However, this task has not been easy for these companies. Media has exposed these
companies in the light of the low-cost of labor companies are now paying foreign workers, as
well as the millions of Americans now left unemployed because of the companys decision to
offshore. According to The Economist (2013), between 2002 and 2016, 2.1 million American
jobs will be lost due to offshoring, which equates to 150,000 jobs a year. However, according to
Mackun & Wilson (2011), there were 308.7 million citizens in the United States as of 2010. This
means that 0.6% of the United States population would have lost their jobs due to offshoring.
Media has aimed their focus mainly on this small percentage of employees compared to all the
possible benefits, which may have come from offshoring. Because of this negative press, the
major marketing campaign by American companies trying to influence their citizens to buy
American products had begun. The media, with the topic of offshoring, did not properly educate
many Americans resulting in a common public perception that offshoring does not have any
benefits.
Significance
The topic of this research proposal has major significance on the history and future of the
United States. Manufacturing, especially car manufacturing, is what put the United States

OFFSHORING FOR CONSUMER DEMAND

economy on the map. This country has seen manufacturing effect the economy in a big way but
the recent struggles the past few decades and the free trade agreements in the 1950s has led these
companies to review their options and make executive decisions to implement a new and
sustainable plan in order to protect the companys future. Some of these plans have led to
offshoring in order for the company to survive. This executive decision has affected the lives of
millions of American workers and their families. It has even produced the American marketing
campaign to buy products made in the USA. This research proposal can be significant to the
large amount of people, whose lives were affected by offshoring. It can also educate the people
with the truth behind offshoring and how the decisions are made.
Purpose
The purpose of this study is to educate the people affected by offshoring about the
possible benefits that come from offshoring. It seems that the media only focuses on the negative
aspects of the business decision instead of shedding light on the potential positive outcomes. The
general population can only focus on the negatives of offshoring. Because of this, this research
proposal will also point out possible factors that lead these companies to offshore, which may not
be obvious to the consumers and avoided by the ratings hungry media.
Literature Review
Least Persuasive Viewpoints
There are a few arguments when it comes to the benefits of offshoring. First, as of 2003,
Bivens (2005) confirms that United States households consume more goods than the United
States workforce produces. It has been this way since the 1970s by a small margin but has slowly
increased over the years since then. Before the 1970s, the United States was a country that was
emerging in the market and becoming an economic powerhouse. Many of the other counties
were in competition with the United States and wanted to be like them, if not better. Because of
this, other countries had turned their focus towards innovation and cost efficiency in order to
compete with the United States economy. Now in 2015, other countries have emerged into

OFFSHORING FOR CONSUMER DEMAND

economic powerhouses and have found efficient ways to compete in the global market. This may
be why the United States imports more goods then they export. However, there are many goods,
which America can simply not produce, due to the climate, lack of natural resources, and
deficiency in Information Technology (IT). Because of this, the United States tends to demand
more goods from other countries, more goods than it produces.
Finally, Bivens (2005) points out that every dollar a company spends to offshore their
company, the company earns $1.14, a profit of $0.14. Companies would not implement a plan to
offshore if they knew their business was not going to be successful. This statistic points out that
most companies are successful when they choose to offshore their work, which makes it a good
business decision. However, the negative side of this statistic is that employees only earn $0.47
when companies spend a dollar on offshoring meaning that the company cuts employee wages in
foreign markets by 53 percent. The company itself is making a profit but they are not spreading
the wealth throughout the company. Instead of paying the employees more, they use their profits
to improve their products and create a sustainability plan for the company. Bivens (2005) argues
that this is a negative aspect of offshoring, but the whole reason for the company to do so in the
first place was to become cost efficient in order to improve their products, ultimately improving
the company as a whole.
Most Persuasive Viewpoints
The most persuasive viewpoints strongly outnumber the arguments for offshoring. First,
many companies move their production to other countries in order to meet the consumers
demand for high quality products that are innovative and different from other companys
products. For these reasons, American companies move themselves into other countries, which
are already producing these types of products for the American consumers. In order for American
companies to learn and perform better, they find it easier to move to the source that is currently
doing it the best. This is often the case for IT companies. Hagel & Brown (2005) point out that

OFFSHORING FOR CONSUMER DEMAND

Indias IT companies operate at level five, which is the highest level of expertise of technical
skill, while the same IT companies in the West operate at a level two or three. Because of this,
many IT companies tend to pack up and move to India to try to gain the information that India
knows. In other words, America is trying to benefit from Indias expertise in information
technology. To some, this seems like a form of trade. American companies move into the India
economy while the American consumers receive the innovative technology they strongly
demand.
Secondly, as mentioned earlier by The Economist (Shape up, 2013), 2.1 million
Americans will lose their job by 2016 because of offshoring. This seems like a large number of
unemployed American citizens until you see the other statistics reported by Farrell (2005).
According to Farrell (2005), 3.4 million jobs will leave the USA by 2015 (pg 680). However,
Farrell mentioned that the United States has created over 35 million new jobs and that over 1
million Americans change their job every month. 3.4 million jobs would leave the USA by 2015
but yet over 12 million American employees change their job each year. Whether those 12
million Americans voluntarily or involuntarily change their jobs, this gives the 3.5 million
employees, who will lose their jobs because of offshoring, the opportunity to be able to find a
new one. Another re-employment statistic, provided by Farrell (2005), is that 69 percent of
workers who lost their jobs due to offshoring found new ones within six months. Although this
statistic is not at 100 percent, as the American population would like it to be, 69 percent provides
the people, subsequently involved with offshoring, hope that over 50 percent of these people can
find new jobs.
Finally, it is also important to note that every dollar of United States spending, which
moves to India, increases the amount of exports to India by an additional five cents. Many firms
in India, which provide outsourced services for American companies, are owned in whole or in

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part by American companies (Farrell, 2005), which may be the reason for the increase in
American exports to India. American companies may be sticking to their roots when they
offshore to other countries. There are some products, which cannot be attained in India, but were
originally available in America. Because of this, the American companies, now in India, are
increasing American exports to India. They moved to India and continued to purchase American
made products for their company, therefore, continuing to benefit the American economy while
present in the India economy.
Analysis
Based on the research above, consumers opinion differs on whether or not they favor
offshoring. There is plenty of information out there and plenty of research to conduct, but these
references are just a sample, but they provide a good base to start with in order to form an
educated opinion, as well as provide arguments to opposing viewpoints. This subject may be
sentimental for those who were personally affected by offshoring, but if the topic can be looked
at with an open mind, then the research, statistics, and opinions of others may positively
influence the general publics perception of offshoring. This research proposal may also highlight
the possible benefits that offshoring has to offer and the reasoning behind why the executive
decision to offshore was made.
Research Questions
This study is designed to answer two questions. 1) What are the potential benefits, to both
the economies involved, when a company decides to offshore their products? 2) What decisions
or factors motivate American companies to move their manufacturing to other countries around
the globe?
Methodology
In order for the research questions to be answered, it would be best to conduct the
research using a qualitative research approach. The qualitative research approach is a method
used to conduct interviews and observations, which typically involves a small number of

OFFSHORING FOR CONSUMER DEMAND

research subjects, which also allows the researcher to understand an issue in depth. Although
offshoring is a nationwide debate, only the major corporations, who can afford to move overseas,
are the ones who decide to offshore. There are hundreds of thousands of businesses in America
but only a couple hundred of those companies decide to offshore. Because of this, a qualitative
research method seems appropriate. This is because the person who decides to conduct further
research on offshoring could sit down with the executives of these companies and discuss their
decision to offshore. The researcher could conduct an interview and get the facts and opinions of
different executives who have decided to offshore their company. This researcher could also
conduct interviews with executives who have decided against offshoring in order to receive a
difference in opinions.
Conclusion
In conclusion, there is still much to learn from the corporate tactic of offshoring. The
purpose of this study is to provide information and statistics, which allow the reader to make an
opinion based on the evidence provided. However, the information provided leans towards the
benefits of offshoring. Companies are trying to do what they can in order to compete with other
companies. In todays society, companies will do whatever it takes to become more successful.
Within the narcissistic American society, the consumer typically receives what they demand
because they have multiple options with products including pricing, quality, and brand. In order
for companies to meet the demands of their consumers and remain competitive, some companies
have found it easier to offshore their work, allowing them to remain successful as well. Paying
less in labor and avoiding the American tax rates has provided these companies with the
necessary capital to meet the demands of the American consumer.

OFFSHORING FOR CONSUMER DEMAND

References
Beattie, A. (2004, September 27). Offshoring: A winner for both parties? Financial Times.
Retrieved from http://www.ft.com/cms/s/0/6fea57b0-1021-11d9-ba6200000e2511c8.html#axzz3p8v6Ff43
Bivens, J. (2005, August 1). Truth and consequences of offshoring: Recent studies overstate the
benefits and ignore the costs to American workers. Retrieved from
http://www.epi.org/publication/bp155/
Farrell, D. (2005). Journal of Management Studies Retrieved from
http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6486.2005.00513.x/pdf
Hagel, J., & Brown, J. (2005). The benefits of a long-distance relationship. Foreign Skills
Centres Offer a Lot More than the Cheap Labour Associated with Offshoring.
Mackun, P., & Wilson, S. (2011, March 1). Population Distribution and Change: 2000 to 2010.
Retrieved from https://www.census.gov/prod/cen2010/briefs/c2010br-01.pdf
Shape up. (2013, January 19). The Economist. Retrieved from
http://www.economist.com/news/special-report/21569568-offshored-jobs-return-richcountries-must-prove-they-have-what-it-takes-shape
What Companies Don't Know About Offshoring Can Hurt Them. (2005, August 18). PR
Newswire. Retrieved from http://www.prnewswire.com/news-releases/what-companiesdont-know-about-offshoring-can-hurt-them-54950427.html