Offshoring

Offshoring is the relocation of a business process or production to a foreign country. It is typically undertaken to reduce costs, access new markets, or tap specialized skills. When the company uses its own subsidiary or captive facilities abroad, the arrangement is called captive offshoring; when it uses an external service provider, it is known as offshore outsourcing.

Common offshore activities include manufacturing, information technology services, software development, back-office processes, and customer support. Historically, destinations such as India, China, the Philippines, and parts of Eastern Europe and Latin America have been favored for their scale, skills, or favorable economic policies. The choice of location often reflects labor costs, language and cultural fit, political stability, and regulatory alignment.

Benefits cited for offshoring include lower labor costs, access to a larger talent pool, potential 24-hour operations, and the ability to scale quickly. Potential drawbacks include loss of control and quality concerns, increased complexity of governance, longer supply times, exposure to currency and political risk, and intellectual property and data security concerns.

Management of offshored operations requires clear governance, defined service-level agreements, robust risk management, and adherence to data protection and export-control laws. Transition planning and ongoing performance monitoring are critical to success. Trends in recent years include nearshoring to nearby countries to reduce time-zone and logistics frictions, and reshoring when cost or quality incentives shift.