Offshoring is a type of outsourcing. Offshoring simply means having the outsourced business functions done in another country. Frequently, work is offshored in order to reduce labor expenses. Other times, the reasons for offshoring are strategic - to enter new markets, to tap talent currently unavailable domestically or to overcome regulations that prevent specific activities domestically.
Offshoring describes the relocation by a company of a business process from one country to another, typically an operational process, such as manufacturing, or supporting processes, such as accounting. Even state governments employ offshoring. More recently, offshoring has been associated primarily with the sourcing of technical and administrative services supporting domestic and global operations from outside the home country, by means of internal or external delivery models.
It is sometimes used broadly to include substitution of a service from any foreign source for a service formerly produced internally to the firm. In other cases, only imported services from subsidiaries or other closely related suppliers are included. India has emerged as the dominant player in offshoring, particularly in software work.
Offshoring can be seen in the context of either production offshoring or services offshoring. The main focus area has been the software industry as part of Global Software Development and developing Global Information Systems. After technical progress in telecommunications improved the possibilities of trade in services, India is now emerging as offshore destinations.
The economic logic is to reduce costs. If some people can use some of their skills more cheaply than others, those people have the comparative advantage. The idea is that countries should freely trade the items that cost the least for them to produce.
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