In practice, the concepts can be intertwined, i.e offshore outsourcing, and can be individually or jointly, partially or completely reversed, as described by terms such as reshoring, inshoring, and insourcing.
[2][3] Imported services from subsidiaries or other closely related suppliers are included, whereas intermediate goods, such as partially completed cars or computers, may not be.
More recently, offshoring incentives also include access to qualified personnel abroad, in particular in technical professions, and decreasing the time to market.
[5] The increased safety net costs of the unemployed may be absorbed by the government (taxpayers) in the high-cost country or by the company doing the offshoring.
Europe experienced less offshoring than the United States due to policies that applied more costs to corporations and cultural barriers.
Being nearby results in potentially beneficial commonalities such as temporal (time zone), cultural, social, linguistic, economic, political, or historical linkages.
This is contrasted with using low-wage manufacturing operations in developing nations and shipping product back to the country that offshored the work.
For example, as of 2020 Portugal is considered to be the most trending outsourcing destination[11] as big companies like Mercedes, Google,[12] Jaguar, Sky News, Natixis and BNP Paribas opening development centers in Lisbon and Porto, where labor costs are lower, talent comes from excellent Universities, there's availability of skills and the time zone is GMT (the same as London).
More recently, companies have explored nearshoring as a risk mitigation strategy for operational and supply chain weaknesses uncovered during the COVID-19 global pandemic crisis, when offshore BPOs experienced sudden closures and disruptive quarantine restrictions which hampered their ability to conduct day-to-day business operations.
[19][20] The complexities of offshoring stem from language and cultural differences, travel distances, workday/time zone mismatches, and greater effort for needed for establishing trust and long-term relationships.
Many nearshore providers attempted to circumvent communication and project management barriers by developing new ways to align organizations.
Physical restructuring arrived when the North American Free Trade Agreement (NAFTA) made it easier for manufacturers to shift production facilities from the US to Mexico.
[23] Growth of offshoring has been linked to the availability of reliable and affordable communication infrastructure following the telecommunication and internet expansion of the late 1990s.
[27] John Urry, professor of sociology at Lancaster University, argues that the concealment of income, the avoidance of taxation and eluding legislation relating to work, finance, pleasure, waste, energy and security may be becoming a serious concern for democratic governments and ordinary citizens who may be adversely affected by unregulated, offshore activities.
Further, the rising costs of transportation could lead to production nearer the point of consumption becoming more economically viable, particularly as new technologies such as additive manufacturing mature.
[30] After its accession to the World Trade Organization (WTO) in 2001, the People's Republic of China emerged as a prominent destination for production offshoring.
Since the 1980s[31] American companies have been "offshoring" and outsourcing manufacturing to low cost countries such as India, China, Malaysia, Pakistan and Vietnam.
In January 2012, President Obama issued a call to action to "invest in America" at the White House "Insourcing American Jobs" Forum.
Bringing manufacturing back to the United States isn't so simple, and there are a lot of considerations and analyses that companies must do to determine the costs and feasibility of reshoring.
[37] The call centre industry in India has been hit by reshoring, as businesses including British Telecom, Santander UK and Aviva all announced they would move operations back to Britain in order to boost the economy and regain customer satisfaction.
Conversely, companies in countries with weak patent systems have an increased fear of intellectual property theft from foreign vendors or workers, and, therefore, have less offshoring.
On May 1, 2002, Economist and former Ambassador Ernest H. Preeg testified before the Senate committee on Banking, Housing, and Urban Affairs that China, for instance, pegs its currency to the dollar at a sub-par value in violation of Article IV of the International Monetary Fund Articles of Agreement which state that no nation shall manipulate its currency to gain a market advantage.
[52] The increased safety net costs of the unemployed may be absorbed by the government (taxpayers) in the high-cost country or by the company doing the offshoring.
U.S. opinion polls indicate that between 76-95% of Americans surveyed agreed that "outsourcing of production and manufacturing work to foreign countries is a reason the U.S. economy is struggling and more people aren't being hired.
This offshoring and closing of factories has caused a structural change in the developed world from an industrial to a post-industrial service society.
Further, the growth of the Internet, particularly fiber-optic intercontinental long haul capacity, and the World Wide Web reduced "transportation" costs for many kinds of information work to near zero.
[65] This gave rise to business models such as Remote In-Sourcing that allow companies to tap into resources found abroad, without losing control over security of product quality.