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Andrew Akinmoladun
California Intercontinental University
ECO 615
Case Study II

Instructor: Dr Drena Valentine

11/18/2014

Introduction
In the present years, companies have moved swiftly to embrace the benefits of off shoring
(Contractor, 2011). In the case, American Multi National corporations have greatly opted to

offshore, a factor which has had its impacts on the economy both negatively and positively. The
improvement of technology has made communication easier, therefore making corporation
management easy and turning the world to a global village. In various analyses, such
measurements as value added, capital expenditure and employment have evidently impacted the
US multinational corporations. The manufacturing employment levels have changed over time
indicating the impacts of multinationals on the economy. A number of factors have also been
identified as motivators to these trend in which organizations move off shore. The advantages
obviously outweigh the disadvantages and thus most United States (US) companies have opted
to go off shore.
The paper is an explanation of the motives off-shoring. It will also highlights the trend of
off shoring which has been witnessed in the United State for over twenty years. The
measurement of the activities is discussed in details after an overview of the case is given. The
motives of the firms to locate offshore and how the it influences the United State multinational
corporations, are closely examined. It will be concluded with a brief summary of the key
elements inherent in the paper. Reference material used in the paper are provided at the last page
of the paper so as to encourage further research and give a guideline for the readers interested in
getting more information concerning the topic.

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Overview of the case analysis
Due to the improvement in technology and communication in all facet of human
endeavor things has become easy and thereby making the world a global village. The production
processes of companies have taken the advantage of these situations. Companies, whose
objectives are profit maximization and cost reduction, are increasingly taking advantage of the
efficiency that technology has brought to the companies disposal. The economies have become
more open to foreign investments and for companies which find it expensive to produce from
their own economy have shifted their production overseas. The extent of the phenomenon in the
United States of America has been described by the Bureau of Economic Analysis (BEA) among
other national statistical agencies.
In trying to understand the motives of off-shoring,and the extent of multinational
activities within the world. The measurement of the activities is usually done in the following
ways: value added, employment and capital expenditures. The capital expenditure is the
expenditures in terms of the number of workers, machines, laboratory facilities and buildings.
Value added is the total production value minus the value of the intermediate inputs. Accordingly
search measures have indicated that off shoring has been on the rise at a constant rate. For
instance the share of multinationals value added created abroad rose minimally between 1977
and 2003. Employment is the measurement which indicated a big change between the periods. A
number of factors motivate corporations to offshore. Basically, the practice has its benefits and
disadvantages (Peng, 2014).

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The three Measures (Value Added, Capital expenditure, employment) and how they impact
United State multinational corporations
Value added is the total production value minus the value of intermediate input. The
United States has had a stable value added in the period between 1990 and 2008. The country is
thus the leading manufacture of goods and services with China following at a rather rapid rate.
After the year 2008, the US value added declined. China and Germany exported more finished
manufactured goods than the United States.
Manufacturing employment of the United States contracted in the period where off
shoring increased. The US employment was high in 1979 and by 1999, it had declined greatly. In
1979 the United States had 19.4 million workers and in 1999 there were 17.3 million workers
meaning that the country had reduced employment by 2.1 million workers over the period. The
countrys manufacturing employment further fell to 13.4 million workers by 2008. As the
manufacturing employment was declining, the total employment of the country was on the rise.
The short period between 1999 and 2008 had witnessed a large loss of manufacturing workers as
compared to the two decade period between 1979 and 1999 (Contractor, 2011).
The trend might have been caused by a number of factors. Accordingly, in the period
between 1999 and 2008 a declining manufacturing employment trend was witnessed. That
happened to all manufacturing industries a quick example is the general motor corporations
plants (GM) in Detroit and other notable city that was turned to a ghost town as a result of plant
closures. The notion that large industries were shedding jobs is thus ruled out. There was a high
employment rate in some industries such as the service industries, health services, education

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services, professional and business services and leisure services. The other service industries
did not perform well.
The declining employment levels that were witnessed due to outsourcing of some
organizational support functions were such as maintenance, payroll processing and food service
sectors. The workers are not considered to be part of the manufacturing sector workers. In the
period between 2003 and 2008, the ratio of non production workers to that of the production
workers declined. As such, to a small extent, the decline in manufacturing employment resulted.
Investment in the development of new manufacturing processes and techniques is also a
culprit to the exhibited decline in manufacturing employment. That is evidenced by the fact that
the ratio of the unskilled to skilled manufacturing workers declined in the period from 1999 to
2008 and the value added increased slightly during the same period.
Capital expenditure which is the expenditure in terms of the number of workers,
machines, laboratory facilities and buildings increased during the discussed periods. The large
multinational corporations invested in machines and the machines later replaced the workers
while at the same time reducing costs.
Factors which motivate firms to locate offshore or move some productions there and why
they influence off shoring by United State multinational corporations
The main reason that motivated firms to relocate or move some productions offshore is
that the parent company will effectively customize the goods for the local market while saving
on transport costs and other costs and increasing the margin of profit (Pedersen, 2013). The US
companies are attracted to off shoring because they incur less labor costs than if production
would have been in the United States. The multi-corporations are also attracted to offshore due

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to the benefits of manufacturing close to source of raw materials. The other reasons which led to
the US corporations embrace the practice are described below.
Generally firms are motivated to offshore because: The companies which offshore get
the opportunity to dig into a skilled labor pool. For instance, Philippines have a large skilled and
available labor pool. In comparison to producing from the parent companies country, firms go
for skilled labors which are cheaper and skilled.
Off shoring presents a firm with the opportunity to easily and quickly expand the
company without having to expand the fixed costs, facilities and capital outlays in the parent
companies country. The core staffing depth of the firm, the increasing of capacity in time, an
increase of customer engagement can be effectively increased as a result of increasing the
customer engagement.
Off shoring also enables the firm to maintain market competitiveness. It is a little more
difficult to maintain the market competitiveness locally. It also develops the career of the local
staff. With efficient management, will likely increase the local staffs performance and give them
the opportunity to develop their skills.
Conclusion
United States (US) Multinational corporations have embraced off shoring due to the
benefits that come with the practice (Pedersen, 2013). The Multi National corporations have
greatly opted to offshore, a factor which has had its impacts on the economy. The improvement
of technology and communication system has made the entire process much easier. According to
the various analyst, various measurements such as value added, capital expenditure and
employment have evidently impacted the US multinational corporations. The manufacturing

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employment levels have changed over time indicating the impacts of multinationals to the
economy. A number of factors have also been identified as motivators to the trend in which
organizations off shore. The advantages obviously outweigh the disadvantages and thus most
United States (US) companies have opted to take the opportunity to leverage on off shore benefit
that includes maximizing profit while saving on over head and increasing sales with local
accessibility.

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References
Garbar J. (2014) International Economics, 5th Edition:9780135100158
Contractor, F. J. (2011). Global outsourcing and offshoring: An integrated approach to theory and
corporate strategy. Cambridge, U.K: Cambridge University Press.
Pedersen, T. (2013). The offshoring challenge: Strategic design and innovation for tomorrow's
organization. London: Springer.
Peng, M. W. (2014). Global strategy. Mason, Ohio: South-Western.