OFFSHORING, OUTSOURCING AND GLOBAL PRODUCTION SYSTEMS IN A HISTORICAL CONTEXT

Abstract

Offshore manufacturing, or offshoring, involves the production in foreign locations of goods
to be sold in the home market. Unlike foreign trade or foreign direct investment, offshoring
only arose in the 1950s and 1960s, although its roots can be traced to the European overseas
plantations and trading posts of the early modern age. In the past, international production
typically involved the movement of labor as well as capital. In the twentieth century, however,
movement by workers declined, thus creating incentives for capital to find labor in low-wage
foreign locations. This article examines the emergence of offshoring in the crucial electronics
sector during the 1960s, primarily in East Asia. It then considers the rise in recent decades
of a more complex system of “global production”, in which firms divide the manufacturing
process among multiple countries. Offshoring has contributed to economic growth and diversification in the areas hosting the new productive facilities, while leading to job losses and
social disruption in the developed countries where output has declined. Offshoring has also
arguably damaged developed nations’ economic competitiveness. This is illustrated by the
emergence of an innovative system of semiconductor manufacturing in Taiwan in the 1980s
,
rather than in the US. Such a breakthrough was made possible by Taiwan’s earlier role as a
location of offshore semiconductor assembly.