Danish companies can benefit from offshoring to countries at an OECD-level

New research shows that it can be a good idea for Danish companies to offshore to high-income countries.

2013.07.03 | Martin Hagelskjær Damsgaard

AU researchers are now breaking with the long-standing policy of chiefly targeting offshoring at cheap production economies in Asia and South America.

 

New results show that when Danish companies offshore – i.e. move production or other company processes overseas – it pays to find new business partners among companies in other high-income OECD countries. 

 

In relation to Danish companies offshoring to low-income countries, the advantages of collaborating with high-income countries include increased exports, productivity and product development.

 

The study findings stem from The Tuborg Research Centre for Globalisation and Firms at School of Business and Social Sciences' Department of Economics and Business and are based on registry data from Statistics Denmark. The figures include all Danish companies in the manufacturing industry with offshoring activities from 1995 to 2006.

 

Companies must streamline

According to Associate Professor Roger Bandick who is heading the project, the findings also stress the importance of Danish executives being able to streamline the company in relation to the challenges they face in the specific offshoring scenarios. 

 

Among other things, Roger Bandick has examined what happens to the composition of employee groups in companies that offshore. The pattern is clear: If a Danish company moves its production from a low-income economy such as China, the company’s low-paid workers are gradually laid off. If, on the other hand, the company offshores to a high-income economy, it is the highly paid workers who are gradually made redundant.

 

Both scenarios are cost-intensive processes which the companies should take into consideration before offshoring:

 

“The message to corporate executives is that they will emerge from any offshoring process in better financial shape if they make effective adjustments to, among other things, the composition of their workforce. Either before the offshoring process gets underway or as soon as the need arises,” says Associate Professor Roger Bandick.    

 

Demands on politicians

He goes on to say that a closer look at the figures reveals an even clearer picture of offshoring. For example, the effect of offshoring varies according to sector, company size, the offshored activity and the specific country to which the activity is offshored.  More research into the area is needed.

 

According to Roger Bandick, this places special demands on politicians interested in legislating so that offshoring activities strengthen the international competitiveness of Danish companies. The challenge is to avoid over-regulation:

 

 “Offshoring is a complex area crucially affecting the competitiveness of Danish companies. Companies need free rein and scope for manoeuvre so they can fully exploit market opportunities,” says Associate Professor Roger Bandick.

 

Contact:


Roger Bandick, Associate Professor

Aarhus University, School of Business and Social Sciences

AU Herning

T: +45 9629 6258

Email: roger@hih.au.dk or rbandick@asb.dk

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