Article at a glance:

How Germany can win from offshoring

European companies, following the lead of their US competitors, have begun to outsource service jobs to low-wage nations. This trend is creating waves of anxiety among white-collar workers once protected from global competition and fueling protectionist sentiment in legislatures across the Continent. Although outsourcing can create wealth for the countries that send jobs as well as for those that receive them, this might not hold true for Europe. New research on Germany—the Continent's leader in offshoring—shows that unless its economy is structurally reformed, it will be robbed of much of the upside of globalization.

The take-away

Trying to stop offshoring through protectionism would be a mistake. To remain competitive in the global economy and turn this economic trend to advantage, Germany must make its labor markets more flexible and rethink product market regulations that stifle competition and innovation.