Offshoring: Value Creation Through Economic Change

9 Pages Posted: 21 Apr 2005

See all articles by Diana Farrell

Diana Farrell

JP Morgan Chase & Co. - JP Morgan Chase Institute


In this essay, I analyse the economic and managerial dimensions of offshoring, drawing from recent research by the McKinsey Global Institute. I argue that offshoring, like other forms of trade, creates enormous value for both companies and the economy as a whole. However, in the case of countries with less flexible labour markets such as Germany, findings are more nuanced. While the potential cost savings for companies from offshoring appear impressive, our research suggests that companies are leaving billions of dollars behind when they offshore. We propose several ways companies could make capital-labour trade-offs to create new markets and services. By maximizing gains from offshoring, companies can both cut costs and generate revenue. Given the benefits offshoring, the challenge is how to make the transition to a global economy less painful for workers and increase the participation in the wealth creation. Hence, I also identify options to help policymakers and companies manage the changes offshoring requires.

Suggested Citation

Farrell, Diana, Offshoring: Value Creation Through Economic Change. Journal of Management Studies, Vol. 42, No. 3, pp. 675-683, May 2005. Available at SSRN:

Diana Farrell (Contact Author)

JP Morgan Chase & Co. - JP Morgan Chase Institute ( email )

New York, NY
United States

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