Offshoring is when a company moves part of its operations to another country—usually to lower costs or gain access to a skilled workforce that’s not available locally. It’s a common strategy in many industries, whether it’s manufacturing, customer service, or tech development.
We also need to introduce the term offshore outsourcing, since it often comes up alongside offshoring. While they’re related, they’re not the same thing. Offshore outsourcing is when a company hires a third-party service provider located in another country to handle certain business tasks—like IT support, accounting, or customer service. Instead of doing the work in-house, you rely on an outside team overseas to get the job done, often for a lower cost or with faster turnaround.
In this guide, we’ll walk you through everything you need to know about offshoring and offshore outsourcing—including how they differ, what the key benefits and challenges are, and which services are most commonly involved. With years of hands-on experience working across global teams and helping clients navigate these exact processes, we feel confident in breaking down this topic in a way that’s clear, useful, and based on real-world insight. If you’re considering offshoring or outsourcing, this might be a great place to start.
Understanding Offshoring: Key Concepts and Real-World Uses
The Definition of Offshoring
Like we previously mentioned about offshoring, it’s the process of moving part of your business operations to another country. But what does that really involve—and why do so many companies choose this route?
At its core, offshoring means setting up or shifting specific business functions to a foreign location where the work is still managed by your company, just from a different place. This could be anything from opening a manufacturing plant abroad to building a remote team of software developers. The main drivers are often lower labor costs, access to a broader talent pool, and the ability to operate across different time zones. Unlike outsourcing, offshoring doesn’t always involve a third party—many companies keep full control of the operations, just in a different location.
For instance, if a U.S. car manufacturer opens its own factory in Mexico, that’s offshoring. But if they hire a third-party call center in Macedonia, that’s offshore outsourcing.
How Offshoring Evolved Over Time
Offshoring began gaining momentum in the 1960s and 70s, primarily as a strategy for large corporations to reduce manufacturing costs by relocating production to countries with lower labor expenses. A notable example is the Maquiladora program in Mexico, which allowed U.S. companies to set up factories just across the border, benefiting from favourable trade terms and reduced operational costs.
The 1990s marked a significant shift with the rise of the internet and advancements in telecommunications, making it feasible to offshore not just manufacturing but also services like customer support and IT. This era saw countries like India and the Philippines emerge as key players in the global offshoring landscape, offering a combination of skilled labor and cost advantages.
In the 2000s, the scope of offshoring expanded further to include knowledge-based services such as software development, finance, and research. Technological advancements and the globalization of business operations facilitated this evolution, enabling companies to tap into specialized talent pools worldwide.
Recently, companies have increasingly embraced ‘nearshoring’—moving operations to geographically closer countries to simplify logistics and enhance collaboration, reflecting evolving business needs.
Common Offshored Functions
- Manufacturing
Factories and production lines for consumer goods, electronics, textiles, etc. - Customer Service
Call centres and support teams handle inquiries, troubleshooting, and follow-ups.
- Information Technology (IT)
Software development, helpdesk support, systems management, and maintenance.
- Data Entry and Processing
Routine administrative tasks like form processing, data conversion, and transcription.
- Accounting and Finance
Bookkeeping, payroll, invoicing, and even financial analysis.
- Human Resources (HR)
Recruitment, onboarding, employee support, and benefits administration.
- Digital Marketing
Content creation, SEO services, social media management, and email campaigns.
- Research and Development (R&D)
Technical research, product development, and testing activities.
- Manufacturing
Nike offshores most manufacturing to Vietnam and Indonesia.
- Customer Service
Large e-commerce brands relies heavily on offshore customer support teams in Eastern Europe.
- IT Services
Microsoft outsources large-scale software development projects to India.
What Is Offshore Outsourcing and How Does It Work?
To better understand offshore outsourcing, let’s look at what it actually involves in practice. What we like to start with when talking to clients is this: it’s about hiring a third-party provider in another country to handle specific business tasks on your behalf. This setup allows companies to stay focused on what they do best, while still getting the work done efficiently—often at a lower cost. It also gives you the flexibility to scale up or down as needed, which makes it a smart, adaptable solution in today’s fast-moving business world.
With this explanation, we’ve already highlighted the main difference between offshoring and offshore outsourcing. This distinction matters because offshore outsourcing usually comes with fewer upfront costs. You don’t have to set up infrastructure or manage a remote team directly—instead, you pay for a service that’s already up and running, which can significantly cut expenses and reduce long-term commitments.
Companies outsourcing software development to India not only save costs but gain access to cutting-edge expertise in technologies like artificial intelligence and cloud computing.
Examples of Offshore Outsourcing
One of the most common examples of offshore outsourcing is a US-based company hiring a customer service team in the Philippines. The Philippines has become a global hub for call centres due to its large English-speaking workforce and cultural compatibility with Western markets. But it goes beyond just customer support.
For instance, many tech companies in the U.S. and Europe outsource software development to teams in India, where there’s a strong pool of highly skilled developers and lower labor costs. In the financial sector, firms often outsource accounting or back-office operations to countries like Poland or Malaysia, where professionals are trained in international standards. Even creative tasks like graphic design or digital marketing are frequently outsourced to agencies or freelancers in Latin America or Eastern Europe.
More Offshore Outsourcing Services
- Data Entry and Processing
Offshore teams handle large volumes of routine tasks like form processing, transcription, and database updates. It helps free up internal resources for more strategic work. - Recruitment Process Outsourcing (RPO)
Companies outsource their hiring activities to specialized offshore firms that manage candidate sourcing, screening, and even onboarding. This speeds up the hiring process and lowers internal HR costs. - Knowledge Process Outsourcing (KPO)
Involves outsourcing high-level tasks such as legal research, market analysis, or financial modeling to countries with skilled professionals. KPO is ideal for businesses needing expertise without building an in-house team. - IT Infrastructure Management
Businesses often outsource the monitoring and maintenance of their servers, networks, and systems to offshore teams. This ensures 24/7 uptime and reduces the need for a large internal IT department. - Content Moderation and Review
Social media platforms, eCommerce sites, and forums rely on offshore teams to review user-generated content, ensuring it meets guidelines and stays appropriate. It’s an essential part of online brand management.
Benefits of Offshoring and Offshore Outsourcing
Lower Operational Costs
Outsourcing or moving operations offshore helps cut down on expenses like salaries, infrastructure, and overhead. You’re essentially getting the same job done for a fraction of the cost without compromising quality. This is the number one factor driving companies to offshore—reducing expenses while staying competitive in the market.
Access to Skilled Global Talent
Tapping into international markets gives you access to professionals who may have niche expertise or training that’s hard to find locally—often at a much more affordable rate.
Faster Scalability
With offshore teams, you can ramp up operations quickly during busy seasons or major projects without the delay of local hiring or onboarding.
Around-the-Clock Productivity
Offshore teams working in different time zones can keep your business running outside regular local hours, which is especially useful for customer service or IT maintenance.
Increased Focus on Core Activities
By handing off routine or time-consuming tasks to offshore partners, your in-house team can stay focused on areas that directly drive growth or require hands-on attention.
Flexibility and Customisation
Outsourcing partners often offer flexible service models, allowing you to adjust the scale, scope, or timeline of work depending on your changing business needs.
Reduced Risk in Certain Areas
Distributing operations across locations can help mitigate risks—economic shifts, labor shortages, or disruptions in one region don’t bring your entire business to a halt.
Faster Time to Market
Leveraging time zone differences and dedicated offshore teams can speed up development cycles, product releases, or customer response times, helping you stay ahead of the competition.
Offshoring Challenges and Risks to Consider (And How to Manage Them)
Communication Barriers
Number one challenge for our clients is communication due to time zone gaps, language differences, and cultural misunderstandings. These can cause delays, unclear expectations, or errors. The issues are manageable with clear communication protocols, reliable collaboration tools, and some overlap in working hours.
Quality Control
Quality control can be a problem when there’s a lack of oversight or misalignment on standards. If expectations aren’t clearly defined, the final result may fall short. To avoid this, set clear quality benchmarks from the start, review work regularly, and keep feedback direct and consistent. Having a small internal team monitor output can also help maintain standards.
Data Security and Compliance
Data security becomes a risk when your offshore partner isn’t following the same standards your business is used to. Different countries may have weaker regulations, or their practices might not align with yours. This can lead to breaches or non-compliance with laws like GDPR. The best way to lower this risk is to work only with vendors who meet recognized security certifications, put strong data protection measures in place, and clearly define responsibilities in the contract. It also helps to do regular checks and limit who has access to sensitive information.
Hidden Costs
Hidden costs are the unexpected expenses that don’t show up in the initial quote but can add up quickly—like training, extra project management time, travel, or adjustments due to miscommunication. These often catch companies off guard if they don’t fully understand the scope of the work or the way their offshore partner operates. To stay ahead of this, ask detailed questions upfront, request a full breakdown of all potential fees, and factor in the time and resources needed to manage the partnership.
Employee Morale
Offshoring can sometimes affect employee morale, especially if your local team feels their roles are being replaced or undervalued. This can lead to lower motivation, tension, or even turnover. It’s not always something you can control—especially when working with offshore companies you don’t know well or that come without strong recommendations. What you can do is manage your internal communication. Be transparent about why offshoring is happening, how it fits into the bigger picture, and what it means (or doesn’t mean) for your current team.
Popular Offshoring Destinations
Some of the most popular offshoring destinations stand out for specific reasons tied to skill, cost, or location.
We already mentioned India, a long-time leader in offshore IT and software development and the Philippines for its strong presence in customer support and BPO, are one of the most popular countries when it comes to offshoring. Latin America, particularly Mexico, Colombia, and Argentina, is gaining interest due to its time zone overlap with the U.S. and growing talent in areas like development, design, and customer service. Lastly, the United Kingdom—though not a traditional low-cost market—is drawing attention for offshoring high-skilled white-collar work because of lower salary expectations compared to the U.S., along with favorable tax structures.
Southeast European countries like Macedonia, Serbia, and Bulgaria are emerging rapidly as attractive offshoring destinations, offering excellent technical education, multilingual talent, competitive rates, and better culturally aligned talent than India and the Philippines.
How to Choose the Right Offshore Outsourcing Partner
- Experience and Track Record
Look for a partner with proven success in your industry—they should be able to show real results, not just promises. A partner experienced in your industry significantly shortens onboarding and reduces misunderstandings, saving valuable time and resources.
- Communication and Language Skills
Make sure their team communicates clearly and fluently in your preferred language to avoid misunderstandings later on.
- Time Zone Compatibility
Check if their working hours overlap with yours—at least partially—to allow for smooth coordination and real-time updates when needed.
- Security and Compliance Standards
Ask about their data protection practices and certifications, especially if you’re handling sensitive or regulated information.
- Technical Skills and Tools
Make sure they’re using up-to-date technology and have the right expertise for the specific tasks you plan to outsource.
- Scalability and Flexibility
Choose a provider that can grow with you or adjust quickly when your needs change—it’s important they can handle both small and large projects.
- Transparent Pricing
Request a detailed cost breakdown upfront so you’re not surprised by hidden fees later in the partnership. Detailed upfront pricing helps prevent budget overruns and ensures there are no awkward delays down the line in the relationship, owing to pricing confusion.
- Client Reviews and References
Always ask for references or check independent reviews—what others say about them will tell you more than any pitch ever could.
- Cultural Fit
Make sure their business values and work style align well with yours—collaboration is much easier when you’re on the same page.
- Trial Projects or Pilot Runs
If possible, start with a small project to test their quality, reliability, and responsiveness before committing long-term.
Conclusion
This article covered everything you need to know on what offshoring and offshore outsourcing really are, what to expect, and how to approach them the right way. Whether you’re just starting to explore this strategy or looking to improve an existing setup, the key is doing your research, setting clear expectations, and choosing a partner that fits your goals. It’s not always a simple process but it’s definitely one worth considering.