 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.

Vaidya, and other members of the JP Morgan Chase Institute for their support, contributions, and insights. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w27617.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Vaidya, and other members of the JP Morgan Chase Institute for their support, contributions, and insights. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w27617.ack NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.