Definition
The term offshoring refers to the practice of assigning work previously performed domestically to a service provider overseas. Offshoring is the opposite of onshoring, which is the practice of assigning work previously performed in a foreign country to a domestically-located business operation.
Explanation
Offshoring involves moving a business process from domestic operations to one located overseas. While companies may decide to offshore work for a number of reasons, the primary driver is usually economic. If labor, raw materials, and other domestic operating costs are expensive relative to operations overseas, the business process may be a good candidate for offshoring.
To a lesser extent, work may be offshored due to the lack of trained or qualified personnel. Companies may also decide to send "non-core" work such as payment processing and call center operations overseas. Politicians typically oppose sending work to other countries since it results in higher levels of domestic unemployment.
Offshoring is sometimes confused with the term outsourcing, which is the practice of assigning work traditionally completed by internal resources to an external service provider. A company can offshore work, but not outsource it. For example, an international company may decide to offshore their call center to a location the company owns and operates overseas.
The term nearshoring is sometimes used when a company sends work to a neighboring country. For example, companies in the United States can offshore their call center operations to the Philippines, or nearshore it to Canada or Mexico.
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