Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state governments may also employ offshoring. More recently, technical and administrative services have been offshored. Offshoring neither implies nor precludes involving a different company to be responsible for a business process. Therefore, offshoring should not be confused with outsourcing which does imply one company relying on another. In practice, the concepts can be intertwined, i.e. offshore outsourcing, and can be individually or jointly, partially or completely reversed, as described by terms such as reshoring, inshoring, and insourcing. In-house offshoring is when the offshored work is done by means of an internal (captive) delivery model. Imported services from subsidiaries or other closely related suppliers are included, whereas intermediate goods, such as partially completed cars or computers, may not be.
Motivation Lower cost and increased profitability are often the motivation for offshoring. Economists call this labor arbitrage. More recently, offshoring incentives also include access to qualified personnel abroad, in particular in technical professions, and decreasing the time to market. From 2018 to 2023, many firms reacted to tariff escalation, geopolitical frictions and industrial policy shifts by diversifying production across multiple countries ("China-plus-many") rather than exiting a country entirely, with Vietnam, India, Mexico, Thailand, Taiwan and the United States among the most frequent destinations. Companies typically cited several overlapping drivers per move—most commonly geopolitical risk and trade-war tariffs, alongside rising costs and the desire to reduce dependence on a single country—indicating multi-causal decision-making rather than a single trigger. Firms often first shifted volumes to already-known suppliers to maintain continuity, then added new sites to build redundancy as conditions stabilized. Jobs are added in the destination country providing the goods or services and are subtracted from the higher-cost labor country. The increased safety net costs of the unemployed may be absorbed by the government (taxpayers) in the high-cost country or by the company doing the offshoring. Europe experienced less offshoring than the United States due to policies that applied more costs to corporations and cultural barriers.
Criteria Some criteria for a job to be offshore-able are:
There is a significant wage difference between the original and offshore countries Remote work is possible in the job The work can be transmitted over the Internet The work is repeatable Additional feasibility considerations observed in 2018–2023 included the availability of multi-country supplier portfolios and destination-country policy incentives that enable staged capacity transfers without disrupting continuity.
Variations
Offshore outsourcing Subcontracting in the same country would be outsourcing, but not offshoring. A company moving an internal business unit from one country to another would be offshoring or physical restructuring, but not outsourcing. A company subcontracting a business unit to a different company in another country would be both outsourcing and offshoring, offshore outsourcing. Offshoring as a service (OaaS) is a business model in which the offshore office is outsourcing to a vendor. The OaaS model leans towards utilizing a team or company which specializes in offshoring work and uses them on a contractual basis as a part of their own team. Types of offshore outsourcing include:
Information technology outsourcing (ITO) is where outsourcing is related to technology or the internet, such as computer programming. Business process outsourcing (BPO) involves contracting out operational functions to a third-party service provider. Offshore Software development Knowledge Process Outsourcing (KPO) is a type of outsourcing that involves or requires more advanced technical skills and a higher level of expertise. Customer Support Outsourcing (CSO) involves delegating customer service functions to offshore call centres or service providers to handle inquiries, complaints, and assistance. Recruitment Process Outsourcing (RPO) is a workforce solution in which a business transfers all or part of its recruitment to an external provider. Businesses can deliver a standalone service or the entire operations. Empirical evidence shows that multi-country ("portfolio") configurations have become more common in manufacturing relocations since 2018; only about one-third of observed moves involved a single destination, with many firms splitting volumes across two to six countries to hedge risk.
Nearshoring Nearshoring is a form of offshoring in which the other country is relatively close such as one sharing a border. Being nearby results in potentially beneficial commonalities such as temporal (time zone), cultural, social, linguistic, economic, political, or historical linkages. According to the 1913 New York Times article "Near Source of Supplies the Best Policy", the main focus was then on "cost of production." Although transportation cost was addressed, they did not choose among:
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