Exploding the myths about offshoring

By Martin N. Baily, Diana Farrell

Offshoring benefits both the United States and developing countries. The challenge is in making sure everyone gets a piece of the pie.

In this essay, Martin Baily, a Senior Fellow at the Institute for International Economics and a Senior Advisor to the McKinsey Global Institute (MGI), and Diana Farrell, Director, MGI, reflect on the current heated debate about offshoring and put the issue in perspective. The authors cite MGI research that demonstrates the sizeable benefits the US stands to gain from offshoring through corporate savings, additional exports, repatriated profits, greater productivity, and new jobs.

While free trade creates wealth and improves a nation's standard of living, not all groups reap the same benefits, particularly in the short term. The reality of the emerging global economy is that the workforce is experiencing higher turnover than ever before. The challenge is how to make that inevitable process less painful and share more of the wealth being created.

Baily and Farrell cite concrete options for political and business leaders to help workers make the transition. Developing countries on their end must open their economies to attain the full benefits that free trade makes possible. Case evidence from MGI's research demonstrates how developing countries benefit from foreign direct investment. By resisting further liberalization, developing economies risk missing out on tremendous growth opportunities.

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