What is Offshoring?

Definition: Offshoring is a business practice that involves relocating certain areas of the company in foreign countries. It is a cost reduction technique where some activities are outsourced to business or individuals outside the country where the company has its headquarters.

What Does Offshoring Mean?

Outsourcing parts of a business is a common practice in our very diversified global economy. Companies hire third parties to take care of certain areas of the business that they consider unessential, high-cost or just out of the company’s field of expertise. By employing third parties to assume these responsibilities companies can focus on the core business and also, most of the times, savings costs along the process. On the other hand, offshoring is an outsourcing practice that includes foreign companies. Businesses normally hire these offshore companies because their country environments allows them to manufacture products cheaply or to provide the required service at a lower cost.

This is the case for areas like customer service, production, IT support and other portions of business that can be offshored adequately to increase profitability. This process has a potential disadvantage which is quality control. Companies with offshore suppliers must provide a proper quality framework to equip these foreign companies to provide a high-quality product or service, in order to maintain the brand’s quality.

Example

Digital Resources Co. is a company that sells everything you can think about for professional photographers and photo aficionados. The company has an extensive line of photo frames with more than 5,000 frame models for buyers to spend a whole day looking through the vast number of available choices at the company stores. These frames are produced in Cambodia, a place that most people don’t know that exists but this is the country where Digital Resources found the cheapest and highest quality manufacturing facilities.

In order to maintain the brand high-quality perception a key executive visits the factory from time to time to review that quality assurance procedures established within the production process are adequately implemented. This has sky-rocketed the company’s profits and it has created a great price environment for clients to enjoy coming back to the stores.