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.
The term is in use in several distinct but closely related ways. 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. A further complication is that intermediate goods, such as partially completed computers, are not consistently included in the scope of the term.
Offshoring can be seen in the context of either production offshoring or services offshoring. After its accession to the World Trade Organization(WTO) in 2001, the People's Republic of China emerged as a prominent destination for production offshoring. After technical progress in telecommunications improved the possibilities of trade in services, India became a country leading in this domain though many parts of the world are 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 thecomparative advantage. The idea is that countries should freely trade the items that cost the least for them to produce.