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De-localizations phenomenon

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Company relocation is a phenomenon much discussed lately. This phenomenon can be dated from the early 60s and in recent years it has really accelerated. Indeed, many companies tend to relocate. The increasing globalization of the economy has accelerated the development of international trade, particularly those of manufactured goods. The increasing ease of communication, lowered tariff barriers, the strong competition in consumer markets have pushed manufacturers to improve their competitiveness by taking advantage of favorable conditions for production of low-wage countries.

The relocation is effected by the installation of an enterprise in another country by taking control of foreign companies or through subcontracting agreements. Initiated mainly by large multinational companies, familiar with international transactions and international networks, off-shoring first grew in the areas of consumer products with high labor demand (textiles, clothing, shoes, components, electronics etc), and then in more complex areas.

However, one wonders what the interests of outsourcing for multinational companies are. Do they not have any limits? Off-shoring: "creative destruction"? After answering these questions, the answers will be illustrated by examples drawn from reality.

How do we define off shoring? In the strictest sense, off shoring is to change the place of a production unit, so it's opening a production unit abroad and the closure of a unit locally. The destination of goods produced is not affected: the domestic market, which implies a flux of new imports, or foreign markets, reducing export flows.

The relocation also means the use of outsourcing proposed by a foreign company to provide goods that were once produced locally. In this case, the goods produced abroad are re-imported into the home market where they will be marketed.

Finally, some qualify as relocation of the creation of a new production abroad rather than on the national territory, which does not reduce the local activity. In this case, the situation is more complicated, depending on whether one considers that the increase in production capacity, the company could be provided locally or not, for various reasons: the location of the markets concerned with transportation costs, customs duties or various non-tariff constraints.

Where it could be provided locally, the local economy is deprived of additional productive capacity, and then we can talk about off shoring. However, we can not really talk about national relocation if the site was not selected, the penetration of foreign markets which must go through an installation of the production site in the country or area concerned. So we can give several meanings to the word outsourcing, overall it is a form of substitution of the productive force that foreign national and they have the common characteristic of having a theoretical direct negative impact on domestic employment.

Indeed, the company stops producing a particular country, or to refrain from increasing its production capacity to manufacture or have manufactured in another country in the form of direct investment or subcontracting.

The job may in fact ultimately benefit from the relocation in part of the production process since it allows the company to maintain or increase its profitability and thus: avoid weakening its competitive position and its possible liquidation, which would result in job losses in excess of that actually resulted from the relocation; increase its market share and production, may increase the lead to recruit new employees, where appropriate on different jobs to support innovation and upgrading.

Tags: company relocation, off shoring, definition of off shoring

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