The definition of relocation is the practice carried out by companies that move their specific work centers or certain areas to other territories that carry a minor coste for them, while improving the company's competitive capacity and increasing the profit margin. In general they are usually multinationals.
The concept of offshoring is considered a consequence of globalization and the opening of borders. The companies choose to locate their production centers in territories where the value of the land is much lower, the salaries are lower than those of the country of origin and where there is also less social protection.
This has caused large companies to choose to install specific business areas in less developed countries, where costs are lower. This will make it easier for them to relocate their products in the markets of the most advanced countries at a cheaper price, thus earning market share and getting more benefits.
There is always a lot of controversy around the offshoring process of a company, with aspects for and against.
Advantages of offshoring
Among the benefits of offshoring we can find:
- Increase in employment in regions that benefit from relocation and stimulating consumption in some third world territories.
- The countries targeted by offshoring manage to improve the level of salaries, largely because salaries in these areas are lower compared to those of the company's nationality of origin.
- Reduction in prices due to cost savings in salaries.
Disadvantages of offshoring
There are also some consequences of localization that are negative such as:
- Loss of employment in the country of origin when replaced by a cheaper workforce.
- Creates low-quality employment in the destination territory.
- Destruction of the environment due to the fragility of the institutions of the destination countries.