chapter  9
24 Pages

Global Outsourcing or Offshoring

As explained earlier in Chapter 5 on international trade and investments, global trade has been increasing at an unprecedented pace since the 1950s. More countries than ever before are engaged today in exports and imports leading to increased income and consumption globally. The creation of the General Agreement on Tariffs and Trade (GATT) in 1945, and its successor, the World Trade Organization (WTO), helped spur the growth by successfully lowering trade barriers among countries. Foreign direct investment (FDI), the process by which companies set up plants and factories in other countries, also increased in volume. In the early years after World War II, FDI flowed from the United States to Europe. As European countries recovered from the war and demand for both capital and consumer products increased, U.S. firms found it more convenient to serve the markets by establishing plants overseas rather than exporting products from the United States. Not only was it economical, but products could be tailored to local markets and distributed through local channels.