Professional in Human Resources (PHR) Practice Exam

Which of the following statements accurately describes the concept of offshoring?

1. It refers to a company's strategies to reduce taxes.

2. It involves relocating production facilities back to the home country.

3. It refers to transferring operations to a country with lower labor costs.

4. It is a strategy used to increase domestic employment.

The correct answer is: It refers to transferring operations to a country with lower labor costs.

The correct answer highlights that offshoring involves transferring operations to a country with lower labor costs. This concept is primarily driven by corporations seeking to reduce expenses by leveraging economic differences between countries. By moving operations overseas, companies can take advantage of cheaper labor, which often results in reduced production costs and increased profit margins. This strategy can include various aspects of a business, such as manufacturing, customer service, and technical support. Offshoring is distinct from outsourcing, as it specifically refers to relocating processes or functions to another country rather than contracting them out to a different company within the same country. Furthermore, the other statements do not align with the definition of offshoring. While reducing taxes can be a related motivation for businesses operating internationally, it does not define offshoring. Repatriating production facilities back to the home country refers to reshoring, which is the opposite of offshoring. Additionally, offshoring does not aim to increase domestic employment; rather, it often results in a decrease in domestic job opportunities as functions move overseas.