When Offshoring Backfires

I have discussed the importance of sustaining a manufacturing base, which is one of the main themes of this blog. I have stressed why it is the backbone of a nation’s well-being both in economic and social sense. When we lose it, the zombication of the economy gets accelerated as history has shown. Korea’s manufacturing jobs have been exported to overseas since the 1990s due to several factors (e.g., wage arbitrage and U.S. monetary policy) as noted. Chaebols have continuously outsourced/offshored to maximize profits after receiving all the subsidies and tax breaks from the Korean government. The Korean government has employed excessive interventions to grow and sustain the chaebol system. Further, it has heavily intervened in markets in nurturing specific sectors and businesses. What has driven this line of policy thinking? Who has been the ultimate beneficiary of this approach?

The following article points out the tradeoffs between cost benefits and customer responsiveness.

From VoxEU

As the global economic downturn grinds on, more companies are acknowledging that labour costs aren’t always the most important factor when deciding where to build their next factory. This column argues that, in times of recession, some companies find that bringing their business home can give them a competitive edge.

http://www.voxeu.org/index.php?q=node/7226