Offshore Outsourcing: Counteracting Forces and Their Dynamic Effects

Many argue that offshoring is an inexorable trend since IT skills have become a global commodity and they are vastly cheaper in other parts of the world. According to this view, most IT work would be drained from the US to overseas locations. However, opposing factors exist. The loss of jobs to offshoring has raised pressure for political action. On the supply side, as developing nations get wealthier, they become less attractive for offshoring. In short, there are multiple factors - some enhancing, others inhibiting - that interact to drive offshoring. In this paper, we use the system dynamics methodology to build a two-country simulation model of offshoring growth that captures the interaction among its major drivers. The model will help us understand the offshoring phenomenon, by identifying the main feedback effects that intensify or temper the growth in offshoring. It can also be used for policy analysis and business planning.