The Impact of Offshoring on the U.S. Economy

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Off-shoring is the establishment of business operations outside national boundaries. The process of moving business outside these boundaries is to garner an advantage either through tax breaks, lower wages, lower transportation cost and/or relaxed regulations ("Offshore definition," 2014). Many firms either branch out as a horizontal multinational or vertical multinational. Horizontal multinational’s produce the same good or services as abroad. This foreign direct investment (FDI) is done to strategically place production closer to the target market. Doing this provides advantages surrounding transportation cost while enhancing learning associated with local needs. A vertical multinational is one that fragments a portion of its…show more content…
Multinational Corporations”. The analysis will evaluate factors motivating firms to move off-shore and the associated impact on the U.S. work force. The three measures that will be discussed are 1) value added (i.e. the measure of capital and labor gain at a given production stage), 2) capital expenditures (i.e. land, buildings and equipment), and 3) employment (i.e. number of jobs lost/created). The paper will conclude with a discussion of outcomes between 1977 – 2003 using data supplied by the Bureau of Economic Analysis. Assessment Economic integration aims to reduce cost and increase value for both producers and consumers. This is accomplished by increased international trade for goods and services. Economic integration has expanded markets by which firms can “play”. Firms are more self-serving, their motive is to reduce cost and increase profits. To do this firms have begun to off-shore their operations. Off-shoring allows a firm to lower cost and establish a presence closer to target markets. This process has become easier with technology advances. For example, information can be shared and transactions made with the click of a button. International borders are easy transcended with expansive transportation networks. This facilitates product movement and placement of resources, supporting just in time (JIT) manufacturing. Critics of this believe overall economic well-being is affected when companies off-shore, since jobs and
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