Question

Research a USA company that recently moved a corporate headquarters or factory or research and development center from the USA to another country. What were the advantages and disadvantages of the company in their offshoring decision? Develop a government-based incentive system to keep this offshoring from happening.

Answer 1

Offshoring the corporate headquarters/factory with the development center is hot topic that subsides the overall USA economy. The global economy is becoming more integrated with competitiveness in the neighbourhood which is driven by investments into the jobs that come with expansion into the global economic front that needs coordinated production & supply chain management which matches both benefits with opportunities which also raises queries on the source as well the location of current & future job market globally.

Offshoring/moving overall operations or production to other foreign bodies with continuing the business has been the USA's one of the pervasive feature. Due to advent of market pressures, the business seeks to reduce the operational costs with production activities, which often affect the workers & job market due to instability in the environment as well as other laws that balance the business in the USA. Due to ineffective labor laws, migration laws, tax structures encourage the firm to relocate thier assets to other foreign countries which match thier production costs cheaply thereby leverage the benefits globally.

With the above evidence, the USA has really lost the essence to call themselves as a home to establish ionic companies or operations in the past several decades. Whether it's overseas synergizing made on M&A deals (Mergers/acquisitions), US firms reincorporate overseas with follow up purchases of foreign firms.

As per research recently Pfizer terminated its $160 billion acquisition of Botox maker Allergen on a single day in the USA due to the US treasury came up with new laws/regulations to restrict invasions happening between the firms. This affected the firm's inversion threshold impacting other deals of it as johnson controls of $16.5 billion merger deal with Tyco International of Ireland & IHS's $13 billion takeovers of London's market. These changes affect the USA firms to make a strategic move to offshore the business to overcome the various risk associated with ease of doing the business. There are many other US ventures who offshored their business addition to above, for instance, Burger King, Budweiser, Purina, McDermott, Seagate technology, Good Humor, Frigidaire, Actavis/Allergen & so on.

- Following are the main pros & cons that all the above firms have gone through by taking a decision on this offshoring decision:

PROS OF OFFSHORING BUSINESS:

• Economies of scale in operation are an advantage for a firm undertakes to offshore the business where when a firm sets up an office/production abroad it's not just capitalizing on the comparative cost-benefit but also getting existing economies of scale due to offshoring the business at a global scale.
• Close collaboration/synergizing is another major benefit for the firm going for offshoring which provides the firm with greater control through such combining force that gives a competitive edge globally.
• Favorable government policies is an another benefit for the company going for offshoring business globally where some exemptions /special grants with incentives are available for them based upon the countries economy situation & availability of the resources which the firm can leverage it.

CONS OF OFFSHORING BUSINESS:

• An increase in unemployment is a problem that may happen if the firm goes offshoring as the local economy gets hurt due to such a move by the firm as getting the work done overseas.
• The company will face the challenge of the cultural & social difference going for offshoring as many countries have different cultural practices which it becomes difficult for the firm going global if they don't match that.
• Security issues are the other key challenge or disadvantages the firm can get as sharing, transmitting the data to other parties there is a risk of authenticating the data & also a breach of it where the firm cannot compromise on data integrity & effect the business as well global economy at large.

- Following are the key points that reflect the government based incentive system that will help them to prevent such offshoring happening:

• Getting into to show that you are indispensable can be a great move that can be taken to incentivize  the offshoring happening. Where the government cannot stop the firm going overseas but can prove the value to the firm that exists in their job duties, appreciating their efforts & also encourage with maximum support to leverage the benefit in local.
• The government can incentivize the offshoring by understanding the job displacements policies that impact their own economy by & large, also state the boundary of the job market with skills & other issues that affect the decisions on not only resources but also the job market at local.
• The focus should be managing the offshoring to such an extent that must not impact the local economy, adding to it there has to the laws that support such business by understanding the FDI regulations, GATS agreements, WTO regulations & also reshift overall regulations that help the firm to leverage the benefit not just by global means by also local means.

Therefore, it's an important role of a government as well as the firm to work jointly to manage such offshoring business by taking all the above concerns clearly & understanding it. This will in turn help the local countries' economy to grow and also stand hold the global position at the global business index to get the maximum benefit by all means holistically.