Offshoring sparks more consumer backlash vs automation job cuts: study

PENNSYLVANIA, UNITED STATES — Companies that cut jobs through offshoring face fiercer consumer backlash than those that cut jobs due to automation or domestic outsourcing, research reveals. 

One of the co-authors of a recent study published in Journal of Consumer Research, Wharton marketing professor Stefano Puntoni, found that moving jobs overseas violates an unspoken “social contract,” damaging brand trust more than layoffs driven by technology or restructuring—a warning for firms weighing cost cuts against reputation risks.

Stronger consumer anger than automation or outsourcing

Puntoni’s study, analyzing 35,000 real and simulated cases, found offshoring sparks significantly more outrage than automation or domestic outsourcing. 

Consumers see shipping jobs abroad as a betrayal—especially when a domestic company cuts local jobs while expanding overseas.

Levi’s faced decades of criticism after shuttering United States factories in the 1980s–2000s, eroding its “all-American” image. 

“We found significantly more negative conversations about collective layoffs when they were about offshoring than about automation,” Puntoni told Wharton Business Daily.

Unlike automation, viewed as inevitable progress, offshoring is considered prioritizing profits over people, Puntoni notes. With social media amplifying scrutiny, brands risk long-term trust loss for short-term savings.

Political and reputational risks compound offshoring’s costs

The fallout isn’t limited to consumers. Puntoni’s research highlights how offshoring inflames political debates, citing recent U.S. efforts like the CHIPS and Science Act with $53 billion for domestic semiconductor production and proposals to tax firms that move jobs abroad. 

Puntoni explained that regulators and voters punish offshoring harder than other layoffs—a growing risk as reshoring gains momentum.

While shareholders may applaud cost-cutting, reputational damage can simmer, hurting sales and inviting regulation. Reddit discussions and news coverage amplify public disdain, Puntoni found, proving transparency matters. 

Firms must weigh savings against lasting brand harm—because once trust breaks, 90% of consumers remember which companies “abandoned” their communities.

Offshore outsourcing: Strategic and financial advantages

Notwithstanding the criticism, offshore outsourcing is still a common tactic for many businesses, as it provides various clear benefits that might boost long-term corporate expansion and even help more general economies.

• Main motivator of outsourcing is major cost savings. By using lower pay rates and lesser overhead in developing nations, companies can save up to 70% on labor and operating costs. These savings can subsequently be put back into research, creativity, or business growth.
• Offshoring provides access to a worldwide talent pool containing highly qualified workers in sectors such as IT, engineering, and customer support—sometimes with knowledge not easily available locally.
• Operating across time zones allows businesses to provide round-the-clock client support and speed product development, therefore acquiring a competitive edge in fast-moving sectors by faster market response.
• Globally distributed operations can assist businesses in retaining business continuity amid local interruptions and reduce risks related to any one market or regulatory environment.
• Some nations provide attractive tax rates and incentives for foreign investment, hence lowering expenses and promoting corporate growth.
• Offshoring regular or specialized jobs lets domestic teams focus on higher-value work, like strategy and innovation, hence fostering development and job creation at home.

A recent initiative highlighting the broader effects of outsourcing is the Outsourcing Impact Review (OIR) by Outsource Accelerator. This landmark annual report spotlights how outsourcing companies worldwide are driving positive societal change, moving beyond traditional cost-savings narratives. 

In its most recent review, the OIR showcased over 19 organizations, reporting $821,000 in financial contributions, over 82,000 volunteer hours, and more than 718,000 beneficiaries globally. The initiative not only benchmarks best practices but also challenges negative perceptions of outsourcing by sharing transformative stories and quantifying the industry’s contributions to communities and economies. 

Mainstream economists contend that by increasing competitiveness and freeing up resources for reinvestment, responsible management of offshore outsourcing may help drive economic development and even generate new employment in the wealthier home nation.

The difficulty for many multinational companies is juggling these advantages with the demand for openness and ethical transition strategies that uphold confidence among customers and staff.