Pros And Cons Of Offshoring

Multinational firms, often referred to as runaway firms; are companies that establish certain parts of their production chain in countries with looser work legislations i.e. lower minimum wages or looser work hours regulations.

Outsourcing has created controversy during the past decade, since it’s been claimed, that big companies such as Nike or Apple are making hard to create employment in the U.S since they have taken their manufacturing industry to other countries where work legislations are more permissive with companies.

However, even though it could be argued that this companies could be creating employment in their home country; it is needless to say that America’s Government isn’t doing anything to bring this jobs back to the U.S.A.

According to them, the lower cost of production will eventually lead to a decrease in the price of the product, thus the increased demand derived from this will result in higher profit that could be invested in employee benefits. However, a study by McKinsey found that two thirds of those economic benefits spill back to the United States (Schroedder and Aepeal, 2003)

Besides, offshoring can create jobs in a developing country, building a strong economic base, increase domestic consumption and encourage imports from developed countries such as the USA.

Moreover, offshoring helps companies concentrate on their core business area and skilled manpower at an affordable price. Countries like India benefit from this kind of outsourcing creating employment for highly qualified personnel, making it the center of software development services industry.

However, there are also negative views on offshoring. One of the main fears is the loss of jobs in the home country to low paid jobs in developing countries;this leads to a fear among the workers of lower wages since they have to compete will other workers abroad who are willing to work for very low salaries USA and China's offshore

Due to its loose work regulations, China has been on of the main countries of destination for American companies willing to offshore their production.

In order to understand the difficulties that big companies are put through when it comes to setting a manufacturing industry in the U.S. It is necessary to understand its legislation.

America's work legislation is regulated by The Fair Labour Standards Act (FLSA) which provides minimum wage, overtime pay, work hours and child labour protections as it is stated below:

Minimum wage is defined on section 6 of the FLSA, employers must pay covered, nonexempt employees at least $7.25 an hour.16 However, the FLSA includes several subminimum wage rates. Employers may pay lower minimum wage rates to tipped employees; workers with disabilities; new hires under the age of 20; full-time students who work in retail or service establishments, agriculture, or institutions of higher education; and high school students who are at least 16 years of age and enrolled in a vocational education