No commonly accepted definition of “offshoring” exists, and the term has been used to include various international trade and foreign investment activities. Services that U.S.-based organizations purchase from abroad are considered imports.
They may also be linked to U.S. firms’ investments overseas—for example; U.S. firms may invest in overseas affiliates as a replacement for, or as an alternative to, domestic production. In recent years, services offshoring has been facilitated by factors, such as the Internet, infrastructure growth in developing countries, and decreasing data transmission costs.
Organizations’ decisions to offshore services are influenced by potential benefits such as the availability of cheaper skilled labor and access to foreign markets, and by risks, such as geopolitical issues and infrastructure instability in countries that supply the services. U.S. government data provide some insight into the extent of service offshoring by the private sector, but they do not provide a complete picture of the business transactions that the term offshoring can encompass.
Department of Commerce data show that private sector imports of some services are growing. For example, imports of business, professional, and technical services increased by 76.8 percent from $21.2 billion in 1997 to $37.5 billion in 2002. From another perspective, Commerce’s data also show that in 2002 U.S. investments in developing countries that supply offshore services were small compared to those in developed countries and that most services produced abroad are sold primarily to non-U.S. markets.
Regarding public sector offshoring, the total dollar value of the federal government’s offshore services contracts increased from 1999 through 2003, but the trend in the dollar value shows little change relative to all federal services contracts. No comprehensive data or studies show the extent of service offshoring by state governments. Government data provide limited information about the effects of service offshoring on U.S. employment levels.........
