Offshoring is a business practice that involves outsourcing of operations from foreign countries with the aim of reducing the operation cost incurred in the process of doing business. This practice is very common among the firms from already industrialized countries to the developing countries which offer cheap labor, adequate raw materials and favorable environment for investment. Offshoring of computer technology is predicted to terminate more than 1.5 million tech jobs by 2017 especially in India, China and Eastern European countries according to the CIO magazine. This paper will focus on discussion of the responses of different countries such as United Kingdom and United States to the effects of offshoring practices on their job creation abilities.
The estimates provided by the research are credible considering the increase in technology based production in many countries. The impact of offshoring and over reliance on technological production will be responsible for the loss of many jobs. As the technology driven production is creating a lot of advancements in the production sector, the world economy is growing at a slow rate to accommodate the increased demand for jobs. Increased productivity will create more jobs as more IT jobs will be lost as a result of moving offshore in search for computer technology (Oshri, Kotlarsky and Willcocks 167). Despite the increased IT jobs creation due to the technology driven production, the jobs which have already moved offshore will no longer be recovered.
In order to prevent the massive loss of IT jobs in the future, the countries practicing high levels of offshoring computer technology should instead focus on more onshore IT development. This will ensure that the countries will nurture their own IT talents to be able to drive the production demands without necessarily having to undergo offshoring. Due to the increased uncertainty of economies and wage rates in foreign countries, many companies prefer to fully eliminate the work instead of offshoring which turns out to be more expensive for the business operation (Smith 195).
The fact that globalization is attained through integration of economies of different countries does not provide for IT offshoring as the only way of attaining IT talent to manage the technology driven productions. Countries experiencing massive industrial development such as China and India may avoid the risk of losing a lot of jobs to the IT offshoring by ensuring that they develop their own talents locally (Oshri, Kotlarsky and Willcocks 186). Companies will experience more advanced globalization by focusing on productions that are cost effective, based on the rationale of the availability of labor and other production resources. Since the prediction by the CIO Magazine is becoming real based on current occurrences, countries should ensure they develop their own IT talents to avoid the effects of offshoring computer technology.
The offshoring practice can be explained by the ethical theory of Utilitarianism as presented by J.S Mill. It outlines that something is declared right or wrong depending on the amount of pleasure it produces for the great number of people. Offshoring activities enable companies to effectively use the available resources and produce cheap goods and services which are affordable to large number of people around the world (McFarlin and Sweeney 272).. Therefore, the offshoring practice basically maximizes the positive results from the undertaking with the aim of causing the greatest happiness to large number of people while minimizing the negative outcomes of loss of jobs on the least number of people. Considering this ethical theory, companies intending to offshore production operations ought to consider the qualitative utilitarianism of their practices as opposed to the quantitative utilitarianism.
United Kingdom is considering establishing a tax on companies that are based in UK and practice offshoring to reduce the offshoring activities. This new regulation requires that any UK resident should declare their interest in offshore companies for the purpose of taxing their earnings from the company. It has been made a criminal offence to fail to make declaration of the correct ownership in an offshore company for the purpose of being subjected to the relevant tax liability. The amendment of the tax laws by the UK government has reduced the advantages expected from investing in an offshore company which has greatly discouraged the practice of IT offshoring among UK based companies.
United Kingdom has also compelled its residents to provide full disclosure of all the offshore incomes in their possession for the purpose of taxation. This has made the operation of bank accounts in foreign countries very costly since the incomes are subjected to constant taxation. Therefore, companies based in UK find the tax burden huge to offshore any activities. Through this way, United Kingdom has made a great step towards eradication of offshoring practices which are responsible for loss of many jobs in the Information Technology sector (McFarlin and Sweeney 312). Therefore, companies based in UK are encouraged by the imposition of taxes on offshoring activities to develop their local IT talents to run their industrialized economy.
Despite the aggressive response of the United Kingdom to the companies that offshore, the insurance industry has not been significantly affected by the new regulations due to the various tax exceptions on insurance companies. The new tax laws on earnings from offshore companies to nit apply in the insurance sector such that the shares of offshore companies which are owned by insurance company are excepted from this taxation.
United Kingdom has created a tax free structure for residents who own insurance policies in offshore companies. Despite this provision of tax free structure, large section of the offshore companies is taxed in United Kingdom thus reducing the intensity of offshoring practices (Geishecker, Riedl and Frijters 738). The reduction in the number of sectors not subjected to offshoring tax is a good indicator that United Kingdom is committed towards developing its own IT talents and avoids outsourcing from other nations.
United States has showed its continued support for free international trade which involves offshoring of services to other foreign countries. In the future it is estimated that, United States will be sending more than 30 million jobs to offshore. This will mainly affect the service industry which does not require much contact between the service providers and the customers (Smith 216). Therefore, IT jobs will be more offshored to other countries especially India whereby the wage rates are low, and it has many experienced specialists who speak English. United States offshore IT jobs to India in order to reduce the cost of offering services while improving the living standards of the Americans.
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However, continued offshoring of IT jobs in America will lead to tremendous loss of jobs among the Americans. Therefore, American economists are focusing on the best way to continue offshoring while preventing the loss of jobs. In response to this situation, United States has restructured its educational systems to prepare the Americans for the task of providing the offshore services locally. The labor policies have been greatly adjusted to suit the future needs of IT experts within America to reduce the need for offshoring practices as soon as it becomes unprofitable (Geishecker, Riedl and Frijters 743). The offshoring services boost the living standards of the people from the country where offshoring is directed. For example, the Indians appreciate the impact of the United States offshoring practices in India based companies which create more jobs for its skilled people.
United States presumes that economy will simply adjust to suit the employment needs of its people. Economists have established that the same way the economy responded to the decline in employment in the manufacturing industries, the same way it will respond to the decline of jobs in the service industry such as the computer technology. Due to the economic adjustments, not all jobs will move offshore but it will reach a point when other nations opt to offshore some of their jobs to the United States based companies due to the economies of scale. This provision has eased the fear of loss of jobs through the offshoring practices of IT jobs. United States has basically showed reluctance in restricting the open fee international trade from its economy which mainly involves the offshoring practices since the system improves the living standards of the Americans (Pedersen et al 216).
The high competition in the global market has forced many United States companies to relocate their operations to countries such as China and India in the process of offshoring of services. Since the signing of the North American Free Trade Agreement, countries such as Mexico and Canada have greatly developed courtesy of relocation of many U.S companies production processes to these countries (Geishecker and Holger 131). Despite the appreciation of the availability of low priced products from China and India, there has been continuous complains from the developed country’s governments about the effects of offshoring on the local employment rates.
United States has begun adapting the measures used by United Kingdom to restrict the extent of offshoring IT jobs to China and India. States like California have responded to the high rate of decline in manufacturing jobs by restricting the state contractors to the companies which offer majority of their jobs to their residents. This has been a good initiative because it ensures that the U.S based companies provide job opportunities to the Americans instead of outsourcing cheap labor from foreign countries (Geishecker and Holger 142). This initiative has restricted the offshoring practices among American companies by prohibiting companies from relocating to foreign countries leading to shift of employment opportunities to other countries while leaving their citizens without jobs.
The U.S Congress passed a bill into law which was meant to regulate the extent of offshoring practices among the U.S based companies. The legislation prevents the U.S federal public service from giving business contracts to companies which perform their operations from foreign countries (Sao and Gupta 102). The issue of offshoring has created political debates as it depletes the country’s ability to offer enough job opportunities for its citizens, thus, weakening the credibility of the U.S economy. The initiative by California is credible since it will ensure that the risk of decline in IT jobs for Americans is reduced by restricting offshoring activities.
Generally, offshoring activities are old practices which have been advanced in the context of globalization. It involves the transfer of production capacity from one country to another while importing the goods and services that had been produced locally. Offshoring practice is not an actual relocation of a company as many people understand it since relocation involves moving the entire production site from one country to another (Sao and Gupta 127). Despite offshoring activities being a mere specialization of labor, its advance effects on the loss of many tech jobs has been a significant problem.
In conclusion, the prediction made by the CIO Magazine about the loss off more than 1.5 million tech jobs to offshoring practices by 2017 has triggered diverse responses from different countries. United Kingdom has responded to the rise of offshoring activities by considering taxing the companies based in U.K that practice offshoring. United States has of late initiated restrictive measures of the free trade to rescue the declining rate of employment opportunities for the Americans. In addition, California has also responded by considering a good measure of restricting the state contracts to companies which offer majority of their jobs to the locals.