How offshoring enhances innovation at home

March 23, 2012: Records pertaining to outsourcing activities in the US and Europe indicate that there has been an increase in spending the areas of technology and investment in offshore locations. The reason for offshoring is not just adapting the products to the local market, but also to develop revolutionary technology.

There is a general concern over the offshoring of innovation, which will increase employment in the offshore destination and reduce the employment opportunities for highly skilled individuals at home. Similar kind of concern exists in the case of other section of workers too. The low cost of labor has encouraged the companies in the west to outsource their business functions to destinations such as India and China, which has led to the reduced employment opportunities to low skilled workers. There is enough evidence to support the loss of jobs in the case of low skilled workers.

The concern over offshoring innovations and other highly skilled jobs have made the concern acute as innovations are essential for the growth of any economy and in this case, the home economy in particular. Governments in some of the developed countries are even asking the organizations to carry out innovative activities in the country.

There has been little empirical evidence to prove the impact of offshoring innovation and other highly skilled work. However there are three probabilities.  One is that offshoring of innovation will lead to loss of employment for workers at home due to reduced cost of labor. Second one that there will be no impact as the task off shored is different from what is done in-house.  The third possibility is that the highly skilled workforce in the offshore destination enhances the productivity of the in-house workers.

The third probability is supported by different studies. The studies observe that combining research activities will reap more benefits than performing it at home. The data collected during a study indicates that there is a positive correlation between the increase in number of offshore inventors and increase in number of in-house inventors. The analysis of the data shows that, a 10 per cent increase in the number of offshore innovators will lead to a 1.9 per cent increase in in-house innovators. This is empirical evidence that proves that increase in offshoring of highly skilled jobs will create opportunities for highly skilled work force in the home country.

The results also shows that governments should stop enacting laws that prevents companies from offshoring highly skilled jobs and encourage organizations to invest substantially that will foster innovation in the country through collaboration.

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