Introduction
Offshoring is a common trend to a majority of international companies that have their root of operation outside the U.S market. Apple Inc. is one such company that has been caught up in a flurry of controversy regarding its stake in remitting taxes to the U.S government. Besides, the offshore account maintained by Apple Company has led to serious criticisms and flurry of accusations. This essay focuses on the main reason why companies like Apple would wish to maintain offshore operations rather than refocus their operations in its domestic country.
Reasons for Offshoring
The main motto that is behind Apple’s decision to engage in offshore operations is to keep the tax man at bay by sending its profits away. Operating offshore system of activities by Apple is motivated and informed by the company’s viewpoints to avoid huge tax bills that the U.S system subject to such corporates (Urry, 2014).
Therefore, this company puts most of its investments from Uncle Sam’s reach, and thus remains financially sound. Holding more of its assets abroad means that such investments shall be free from the huge taxation bills that the US system imposes on corporates. In fact, Apple holds over $229 billion of its assets outside the USA, meaning that just a little proportion of its assets are exposed to the U’S tax system, which is relatively exorbitant compared with the tax system of the offshore operated countries.
An estimated percentage of 90% of the Apple’s total assets are held in the foreign offshore operations, meaning that only 10% is left in the USA. As reiterated before, this decision is informed by the fact that higher investment in the U.S economy would mean higher tax predisposition in the company that competes other corporations, whose operations are undertaken in a more liberal economies in terms of tax bill.
Other than the reasons above, Apple’s decision to hold a sizeable chunk of its cash and assets reserves in the foreign countries is informed by company’s adherence with the law. Offshore operations approved by the U.S constitution controlling the operation of the corporations. Therefore, it is not an illegal business to have offshore operations.
Consequently, Apple’s decision to maintain its operations in the foreign countries is informed by the need to maintain larger cash pool. It is evident that subjecting the company’s profits to the U.S tax system leads to a larger consequence in its balance sheet than when the company operates in the foreign country.
Indeed, the dynamic tax system presents Apple with a wide range of opportunities to make the right decision that is in the best interest of its business goals. Profitability remains the main objective if any venture, therefore, resorting to an option that would generate lower expenses is the best platform that any business would pursue (Urry, 2014).
Considering that Apple is dealing in a purely transparent business, and its operations are legal by law, its decision to offshore most operations is in the best interest of the company’s liquidity due to lower taxes levied by the host countries compared to the American tax system that is complex, and subject it to higher levels of taxation. This is indeed one way that Apple improves its profitability.
In fact, Apple’s CEO Tim Cook recently responded before the congress summon that it was evading taxes, and challenged this committee that Apple will only consider repatriating its business operations to the USA if the taxation laws on corporates are revised to be liberal and fair for the corporations. This statement is the truth and reflective of the Apple’s position to hold offshore operations, since its deemed a less expensive affair than enfranchising its business to the US and subjecting to its exorbitant tax systems.
Impacts of Offshoring on the Home and Host Countries’ Economies
In as much as offshoring is a business practice that leads to higher profitability to the company, this business operation has significant impacts on the home country’s economy, and it’s the reason for the growing concerns and clamor by the governments of these countries to repatriate the businesses back to their countries (Kehal, & Singh, 2006). Indeed, this is a debate that sparked fury and controversies given that companies like Apple are determined to increase their profit margin by confiding by the tax system of the host countries instead of aligning by the U.S tax bill that is relatively higher and complex.
Thus, retaining this law to allow offshore activities will lead to numerous financial losses to the U.S governments, whose economy depends on both local and domestic taxes. For example, it is estimated that a total of $600 billion is likely to be lost if this trend persists in just a couple of decades. This is a big loss considering that the U.S economy is robust, and even some foreign countries directly rely on the aids and grants from the American government.
Offshoring has also been criticized for some socio-economic impacts it has on the American economy. This business operation is believed to have direct negative impacts on job creation to the Americans. Besides, offshoring is deemed as an avenue upon which a lot of money is diverted from the economy thus leading to less money available to the economy (Sharan, 2011). This has a spiral effect of lowering wages by the domestic companies operating in America, and as a result poor living standards on the people. In addition, offshoring is deemed as an avenue for tax evasion, which has not been received so well by most Americans.
While offshoring has been met with resistance and negative feedbacks by the home country, the host countries express pleasure with the move. In the first case, offshoring leads to direct investment in the host countries as companies like Apple put all their investments in the respective host countries. This implies that the host countries enjoy the full benefits of operating these investments in their countries, one being direct employment created. Several people have been employed by the international companies in the host countries. For example, a majority of Apple’s employees come from the regional background where the company is located.
In addition, the host countries reap direct financial benefits since the companies ascribe to their tax system and remit taxes to their national revenue collections. Thus, taxes are diverted from the home country’s treasury to the host country’s treasury. This incentive leads to direct benefits to the host country that gains tax advantages to its financial coffers.
Possible Justification for Re-Shoring some off its Activities
As one of the leading manufacturers of both computer software and hardware in the World, Apple has been going through some ordeals in the international market that calls the company to consolidate all its manufacturing processes back to the mother country, which is the United States of America. The process of peeling back manufacturing from the international scene back to the motherland is referred to as reshoring. There are several reasons that can make the company return all the manufacturing operations back to the motherland, one particular issue that can compel the computer software and hardware manufacturer to reshore can be a yearning to improve on the quality (Bounds, 2013).
Quality can be improved when the manufacturing unit is common. As a matter of fact, the matrices involved in the manufacturing process can slightly differ leading to a significance difference in the quality of the products released to the market. As it is known, low quality injures the reputation of a company both at the domestic and international market. Nonetheless, Apple Inc. might have been having issues in relation to intellectual property protection. Countries across the World have different intellectual property laws, these laws can be contrary to the manufacturer’s motherland laws (Bounds, 2013). As such, the company would automatically have issues to do with intellectual property protection.
Apple Inc. Company is a company that trades in human invention. These inventions solely depend on intellectual property laws in order to be retained to the rightful owner. Take for example the People’s Republic of China where intellectual property laws are not effectively applied, when a country that trades in invention opens a manufacturing plant in such a country, it would automatically have issues with intellectual property protection. In such a case, the company would have no alternative but to return all the manufacturing operations back to the mother land in order to remain protected (Bounds, 2013).
Yet still, there are other benefits that the company will accrue as a result of returning back its operations to the United States of America. Reshoring not only help the company in dealing with substandard products but also helps the company deals with issues pertaining to delivery of computer products to the mother country. Goods transported overseas goes through a torturous moment in the cause of transportation. Nonetheless, theft of IP addresses will be addressed to a significant level (Bounds, 2013). Moreover, reshoring will help Apple Inc. sort issues related to the supply chain management while at the same time reducing the overall cost of delivery. Lastly, returning back the manufacturing operations back to the mother country helps in raising the economic status of the country besides providing employment opportunities to the natives.
Cultural Assessment of Apple Inc.’s Home and Host Country based on Hofstede’s Theory
The Hofstede’s theory on cultural dimension provides a framework over which a cross cultural communication can be reviewed. It categorically describes how a society’s values and cultures can impact on a company. The theory is quite relevant to the situation of Apple Inc. that has several offshore manufacturing plants across the world (Fischer, 2011). Moreover, the framework gives an examination people’s cultures and values in relation to their behavior and the way they react to particular issues in the society. Just like the case of Apple Inc., the theory was developed by Hofstede to have a critical look at the employees’ values for IBM workers across the globe.
Apple Inc. has been having cultural related complications from its many companies across the globe. The real situation is that a country cannot have the same cultures and values as compared to the mother country of the company. Several companies have returned their manufacturing process back to the mother country due to complications accrued from cultural variations. Cultures and values held by the people negatively affect the daily operations of a company. A company like Apple Inc. needs moral and psychological support for the employees at all times for them to deliver promptly. Any cultural issue derails people’s focus (Fischer, 2011)
The cultures of a host company can negatively impact on a company in several ways. Little things relating to cultures and values such as the shared language, religious and cultural beliefs, historical background, and political systems are always identified as a nations’ culture thereby qualifying to be the host’s country practices and beliefs. All these impact on an international company on certain but usually not for the good reasons.
A typical example within Hofstede’s theory is that the power distance is closely correlated with irregular income distribution among the citizens and consequent bribery of the persons of interest (Fischer, 2011). That directly translates to corruption on the political front giving rise to a corrupt government. The aspect of individualism as enshrined within Hofstede’s theory correlates to national wealth and mobility. It is finally deduced that when a country gets richer, its culture turns to be individualistic.
It’s quite difficult to conduct business activities in a corrupt and individualistic government as the ruling class would be interfering with the business activities for their personal gain. Where their interest supersedes the interest of the company, then the company will end up making huge losses that can lead to its closure. The concept is quite relevant to offshore companies.
References
Bounds, A. (2013). Survey Says Reshoring Symbolic and will not lead to Jobs Boom. Toronto, the Globe and Mail Publishers.
Fischer, R. (2011). Where is Culture in Cross-Cultural Research? An Outline of a Multilevel Research Process of Measuring Culture as a Shared Meaning System. International Journal of Cross-Cultural Management.
Kehal, H. S., & Singh, V. P. (2006). Outsourcing and offshoring in the 21st century: A socio-economic perspective. Hershey, Pa: Idea Group Pub.
Sharan, V. (2011). International business: Concept, environment and strategy. Delhi: Dorling Kindersley (India)/Pearson.
Urry, J. (2014). Offshoring. Cambridge, UK : Polity Press,
