Offshoring | Meaning and Definition

What is offshoring?

Offshoring is the act of transferring a company or a business operation to a different nation in order to take advantage of costs of labor that are lowered or a more favorable regulatory environment. Manufacturing, IT, customer service, and research and development are just a few of the operations that are frequently outsourced.

Offshoring is mostly divided into two categories:

Product Offshoring – When the main selling product is produced overseas and imported for sale in the home market. 

Service Offshoring – When a product is made in the domestic market, but services such as customer service, information technology, marketing, and human resources are transferred.

Offshoring is divisive for a variety of reasons, including the loss of economic advantages to the home country and the number of jobs accessible to locals, as well as possible exploitation concerns over the widespread hiring of cheaper labor in the destination country. Businesses who outsource customer service may see their service levels suffer as a result of the cultural mismatch in expectations that might emerge. This doesn’t mean that offshoring does not have its advantages; offshoring provides cheap labor, better management and functioning of the core elements, and a lot of tax benefits for firms.