For every dollar spent on offshoring by the US in 2002, the total value derived by the global economy was $1.4 to $1.47.
While 78 per cent of the value, $1.12 to $1.14, was retained in the US, only 22 per cent, $0.33, was accrued to offshoring destinations like India.
Outsourcing and India: Complete Coverage
This was reported by the San Francisco-based McKinsey Global Institute, an independent research group with McKinsey & Co.
Giving a breakdown of the value created in the US by offshoring, the report said that every dollar resulted in savings of 58 cents to US investors and customers. At the same time, it resulted in an increased import of US goods and services by providers in India.
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For every dollar spent on offshoring by the US in 2002, the total value derived by the global economy was around $1.47 Only 22 per cent of the value, $0.33, was accrued to offshoring destinations like India Every dollar spent on outsourcing resulted in savings of 58 cents to US investors and customers |
"For every dollar of spend offshored, offshore service providers buy an additional five cents worth of goods and services from the US economy, thereby creating exports and extra revenue for the US economy. Providers in low-wage countries require US computers, telecommunications equipment and other hardware and software equipment. In addition, they also procure legal, financial and marketing services from the US," the report stated.
Several providers in the US offshoring market are incorporated in the US. "These companies repatriate their earnings back to the US, which amounts to an additional 4 cents out of every dollar of spend offshored," the report added.
Finally, the labour freed due to offshoring adds another 45 to 47 cents of value. "This appears a reasonable assumption given the empirical evidence that services workers find employment more quickly than manufacturing workers, and job-displacement during the last two decades -- when jobs offshored were primarily in the manufacturing -- was at least as high as the projected job displacement in services," the report said.
The total value retained in the US thus adds up to $1.12 to $1.14. "Offshoring creates net additional value for the US economy that did not exist before, a full 12 to 14 cents on every dollar offshored" the report added.
In contrast, offshoring destinations like India capture only 33 cents out of every dollar offshored. Out of this, 1 cent goes to the state government, including sales tax on the supplier industries and supply of power.
Another 3 cents go to the central government in the form of income tax and corporate tax. While the labour employed gets 10 cents, profits retained in India add up to another 10 cents. The suppliers only get 9 cents.