Working paper Series

Policy Responses to the New Offshoring: Think Globally, Invest Locally
by Daniel Trefler.

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Abstract

This paper examines the issues surrounding outsourcing and offshoring of goods and services. In considering international offshoring, two trends stand out. The first is the rise of China as the world’s manufacturer. The second is the rapid growth of traded services involving innovative, technology-intensive processes and employing high-paid white collar workers. Offshoring enables firms to concentrate on core activities and their competitiveness. Thus, the paper argues that offshoring is both a threat and an opportunity. Many Canadian firms have yet to recognize the sea change in their sourcing possibilities. Better information about the strategic offshoring option is needed. Offshoring has important policy implications for Canada and other major economies. The building blocks for globally competitive Canadian firms are domestic policies that encourage investment in upgrading and innovation by individuals (i.e. human capital) and firms (i.e. research and development and advance technologies).

Key words: Service offshoring, outsourcing, low-cost countries, trade, skill, low wages.