--- title: "What Is Offshoring? Types, Examples, Pros & Cons" url: https://www.wisemonk.io/blogs/offshoring lang: en updated: 2026-10-24 --- [All Blogs](https://www.wisemonk.io/blogs) Written By [Wisemonk Team](https://www.wisemonk.io/authors/wisemonk-team) Category Offshoring & Outsourcing Operations Read time 6 min read Last updated October 24, 2026 Share this blog # Offshoring: Definition, Types, Examples, Pros and Cons [Add us as a preferred source](https://www.google.com/preferences/source?q=wisemonk.io) Want the numbers behind India’s market? Get research-backed data and insights to understand where India’s investment, talent and business markets are heading. [Download the Full Research Report](https://www.wisemonk.io/research/india-investment-statistics) [G2 High Performer Summer 2026](https://www.g2.com/products/wisemonk/reviews) [G2 Best Results Summer 2026](https://www.g2.com/products/wisemonk/reviews) [G2 Users Love Us](https://www.g2.com/products/wisemonk/reviews) TL;DR - Offshoring means moving a business function to another country, usually for lower labor costs, deeper talent pools, or round-the-clock coverage. It differs from outsourcing, which is about who does the work, not where. - Companies offshore in three ways: a captive center they own, an offshore vendor, or an employer of record that hires staff for them. The model decides who controls the team and who carries the compliance risk. - The trade-offs are real: data security, IP protection, time zones, and labor law compliance, plus a public debate over US jobs. One Princeton study estimated 22% to 29% of US jobs could in theory be offshored. - In 2026, US employers should watch three things: the proposed HIRE Act's 25% outsourcing tax (not law), the 15-year amortization rule for foreign R&D, and AI, which is shrinking demand for routine offshore tasks. Have questions about offshoring, or need help building and paying a team abroad? [***Reach out to us today!***](https://www.wisemonk.io/contact) ***Discover*** [***how Wisemonk creates impactful and reliable content.***](https://www.wisemonk.io/our-content-methodology) Why do so many US companies run part of their business from another country, and should yours? We have helped over 300 global companies hire, pay, and manage more than 2,000 employees without setting up a local business entity, so we hear this question every week. This guide covers what offshoring is, [how it differs from outsourcing](https://www.wisemonk.io/blogs/outsourcing-vs-offshoring), its risks, what changed in 2026, and what [managing an offshore team](https://www.wisemonk.io/blogs/offshore-team-management) involves. ## What is offshoring? Offshoring is the practice of moving a business function, such as manufacturing, software development, customer support, or accounting, from a company's home country to another country. Companies do it mainly to lower labor costs, reach specialized talent, or run operations across more hours of the day. The word describes location, not ownership. An offshored team can be your own staff abroad, or it can belong to a vendor you pay. Economists call the cost side of this labor arbitrage: paying the market wage of a lower-cost country for work sold in a higher-cost one. This guide covers operational offshoring, moving business functions abroad. The term is sometimes also used for offshore financial accounts held in low-tax jurisdictions, which is a separate topic. ### How does offshoring work in practice? From our experience onboarding more than 2,000 employees across borders, every move follows the same sequence. A company picks a function that does not need to sit near its customers, chooses a country with the right skills and costs, and decides who will legally employ the team. That last choice fixes control, cost, and legal exposure for years. ### What are the three offshoring models? Most offshoring falls into one of three operating models. The first is captive offshoring, where you own a subsidiary or [global capability center](https://www.wisemonk.io/blogs/global-capability-centers) abroad. The second is [offshore outsourcing](https://www.wisemonk.io/blogs/offshore-outsourcing), where a foreign vendor delivers the work. The third uses an employer of record, a local company that legally employs your chosen hires while you manage their work. Here is how the three compare: Three offshoring models compared | Model | Who owns the team | Who handles compliance | Best for | | --- | --- | --- | --- | | Captive offshoring | Your company | Your company | Large firms wanting full control | | Offshore outsourcing | The vendor | The vendor | Defined tasks with clear outputs | | Employer of record | Your company (day to day) | The EOR | Growing firms that want control without an entity | Pick the model by how much control you need and how much legal risk you will hold. Offshoring is a location decision first and an ownership decision second. ## Why do companies offshore work? Companies offshore work to cut costs, find skills they cannot hire at home, and speed up delivery. The theory behind it is comparative advantage: each country does best by specializing in what it produces at the lowest relative cost, then trading for the rest. Cost is still the biggest reason, but it is no longer the only one. In Deloitte's Global Outsourcing Survey, the share of executives naming cost reduction as a top driver fell from 70% in 2020 to 34% in 2024, as access to skilled talent and agility moved up the list. The main motives we see behind offshoring decisions are: - **Labor cost gaps:** the Bureau of Labor Statistics puts US private-industry compensation at $46.89 an hour in June 2026, with $14.07 of that in benefits, so wage gaps abroad add up quickly at scale. - **Talent shortages:** hard-to-fill roles in engineering, data, and finance often have deeper candidate pools abroad. - **Speed and coverage:** teams in other time zones keep support, testing, and processing running overnight. - **Market access:** a team abroad can also serve customers in that region. Most companies now offshore for a blend of these reasons rather than for savings alone. ## What are the main types of offshoring? The main types of offshoring are production offshoring, IT and software offshoring, and business process offshoring. They differ by what moves abroad, from factory output to code to back-office and customer-facing work. Having guided hundreds of companies through their first offshore hires, we see the type of work drive every later choice. ### Production offshoring The oldest type, dating to the 1960s and 1970s, when manufacturers moved assembly to lower-cost countries. [Outsourcing manufacturing](https://www.wisemonk.io/blogs/outsourcing-manufacturing) of electronics, apparel, and auto parts to contract factories is the usual route. ### IT and software offshoring Development, QA testing, and IT support moved offshore in the 1990s as internet links made remote delivery practical. Many firms start with [IT outsourcing](https://www.wisemonk.io/blogs/it-outsourcing) to a vendor, then build their own team abroad. ### Business process offshoring This covers [business process outsourcing](https://www.wisemonk.io/blogs/what-is-business-process-outsourcing) such as customer support, plus knowledge work like analytics and research. It splits into customer-facing front-office roles and [back-office outsourcing](https://www.wisemonk.io/blogs/back-office-outsourcing) such as accounting and data entry. The higher-value end is sometimes called knowledge process offshoring (KPO), covering research, financial analysis, and engineering support rather than routine transactions. Match the type to how complex the work is and how much customer contact it needs. ## What are some real examples of offshoring? Some of the best-known US brands are built on offshoring. Apple designs its iPhones in California while contract manufacturers such as Foxconn assemble them abroad, and Nike owns none of the factories that make its shoes. Nike's fiscal 2025 annual report shows how concentrated that can be: contract factories in Vietnam, Indonesia, and China made about 51%, 28%, and 17% of Nike Brand footwear. Here are common examples across sectors: Offshoring examples by sector | Company or sector | What moved abroad | Model used | | --- | --- | --- | | Apple | iPhone assembly | Offshore outsourcing | | Nike | Footwear production | Offshore outsourcing | | US automakers | Vehicle assembly in Mexico | Captive nearshoring | | Banks and tech firms | Engineering and operations centers | Captive offshoring | | Customer service teams | Voice and chat support in the Philippines | Offshore outsourcing (BPO) | Popular destinations vary by work type: South and Southeast Asia for IT and support, Eastern Europe for engineering, and Latin America for nearshore teams. If you are eager to see how locations compare for technical roles, refer to this guide on the [best countries to outsource software development](https://www.wisemonk.io/blogs/best-countries-to-outsource-software-development). These cases show that offshoring works best when a company keeps the design, brand, and customer relationship at home. ## How is offshoring different from outsourcing? Offshoring is about where the work happens; [outsourcing](https://www.wisemonk.io/blogs/understanding-outsourcing-business) is about who does it. Offshoring moves a function to another country, whether your own staff or a vendor runs it. Outsourcing hands a function to a third party, whether that party is local or foreign. When you do both at once, moving work abroad and handing it to a vendor, that is offshore outsourcing. The quickest test is to ask who employs the people doing the work. Offshoring vs outsourcing at a glance | Factor | Offshoring | Outsourcing | Offshore outsourcing | | --- | --- | --- | --- | | Location | Another country | Any country | Another country | | Who employs the team | Your company or an EOR | A vendor | A foreign vendor | | Control | High | Low to medium | Low to medium | | Example | US firm hiring engineers abroad | US firm using a local PR agency | US firm using a Philippine call center | Keeping the two terms apart makes vendor contracts and tax planning far clearer. ## How does offshoring compare with nearshoring, onshoring, and reshoring? Nearshoring moves work to a nearby country, such as Mexico or Colombia for US firms. Onshoring keeps it in the home country, and reshoring brings previously offshored work back home. Offshoring usually sends it farthest and offers the largest cost and talent gains. From advising companies on both sides, the right answer depends on whether you optimize for cost, time zone overlap, control, or resilience: Onshoring vs nearshoring vs offshoring | Factor | Onshoring | Nearshoring | Offshoring | | --- | --- | --- | --- | | Labor cost savings | None | Moderate | Highest | | Talent pool | Domestic only | Regional | Global | | Time zone overlap | Full | High | Needs planning | | Compliance effort | Low | Medium | High | | Best for | Sensitive, high-control work | Real-time collaboration | Scale and specialist skills | Reshoring is growing in manufacturing. The [Reshoring Initiative](https://reshorenow.org/june-9-2025/) counted 244,000 announced US manufacturing jobs from reshoring and foreign direct investment in 2024, the third-highest year it has recorded. Services work, by contrast, keeps moving abroad. If you are interested to know more, refer to our guides on [nearshoring vs offshoring](https://www.wisemonk.io/blogs/nearshoring-vs-offshoring) and [onshore vs offshore](https://www.wisemonk.io/blogs/onshore-vs-offshore) models. Many companies now mix all three, keeping core work at home and placing the rest where it fits best. ## What are the benefits of offshoring? The main benefits of offshoring are lower labor costs, access to specialized skills, faster hiring, longer working hours across time zones, and more room for the home team to focus on core work. Together these lift margins and speed up delivery. ![Benefits of offshoring in 2026: lower labor costs, specialized talent, faster scaling, round-the-clock operations, and more focus on core work](https://www.wisemonk.io/_image?href=https%3A%2F%2Fcdn.sanity.io%2Fimages%2F2i41ja6l%2Fproduction%2Ff8f2e58884f346b34b0c80bea2ec4cda5adb52e9-1024x768.webp%3Fw%3D3200%26fm%3Dwebp%26q%3D90%26auto%3Dformat&w=1600&h=1200&q=90&f=webp&fit=cover&position=center) Key benefits of offshoring Across the 300+ global companies we support, the teams that treat offshoring as a talent strategy rather than a cost cut get the best long-term results. The benefits that hold up most consistently are: - **Lower total cost:** wages, benefits, and office costs are often well below US levels, as our breakdown of [offshore software development cost](https://www.wisemonk.io/blogs/offshore-software-development-cost) shows. - **Specialist skills:** hire scarce skills without competing in the tightest US labor markets. - **Faster scaling:** mature talent markets let you add people in weeks. - **Follow-the-sun work:** work moves forward while your home team sleeps. - **Sharper focus:** your onshore staff spend more time on product, sales, and strategy. These gains only hold when the offshore team is managed as part of the business, not as a separate cost center. ## What are the disadvantages and risks of offshoring? The main disadvantages of offshoring are communication gaps, data security and intellectual property risk, quality control, labor law compliance, hidden transition costs, and reputational exposure. Most can be managed, but only if you plan for them before the first hire. In our experience, companies that struggle rarely chose the wrong country; they underestimated the compliance work. The risks to plan for are: - **Data security:** the global average cost of a data breach hit a record $4.99 million in [IBM's 2026 Cost of a Data Breach Report](https://www.ibm.com/reports/data-breach). Set access controls and check [EOR data security](https://www.wisemonk.io/blogs/eor-data-security) terms before data crosses borders. - **IP ownership:** state clearly in [outsourcing contracts](https://www.wisemonk.io/blogs/outsourcing-contracts) and employment agreements that all work product belongs to the parent company. - **Tax exposure:** staff abroad who negotiate or sign deals can create [permanent establishment risk](https://www.wisemonk.io/blogs/understanding-the-risks-of-permanent-establishment), making your company taxable in that country. - **Compliance and classification:** each country has its own labor and termination rules, and treating employees as contractors invites penalties. - **Communication and quality:** time zones slow feedback unless you set KPIs and overlap hours. - **Hidden costs:** travel, transition time, and currency swings rarely appear in the first budget. Treat each risk as a line item in your plan, and the downside becomes manageable rather than a surprise. ### Worried about labor law compliance in your offshore location? Wisemonk becomes the legal employer for your offshore team, so contracts, payroll, statutory benefits, and filings sit with us. [Talk to an Expert](https://www.wisemonk.io/contact) [View our Pricing](https://www.wisemonk.io/pricing) ## How does offshoring affect US jobs and the economy? Offshoring moves some jobs out of the US while lowering prices for consumers and helping firms stay competitive. Economists agree on both effects but disagree on the net result, which is why the topic stays politically heated. On the scale of exposure, a 2007 study by Princeton economist Alan Blinder estimated that [22% to 29% of US jobs](https://economics.princeton.edu/working-papers/how-many-u-s-jobs-might-be-offshorable/), or 25.2 to 31.8 million, were potentially offshorable. That measures what could move, not what did. Actual losses are harder to isolate from trade and technology. The [Economic Policy Institute](https://www.epi.org/publication/growing-china-trade-deficits-costs-us-jobs/) estimates that the growing goods trade deficit with China eliminated or displaced 3.7 million US jobs between 2001 and 2018, most of them in manufacturing. ### Why is offshoring controversial? Job losses tend to cluster in specific towns and industries, while the gains, lower prices and stronger company profits, are spread thinly across the whole economy. Critics also point to weaker labor and environmental standards in some destination countries. Supporters answer that total US employment depends more on the wider economy than on trade. For employers, the lesson is to be open about why work is moving and how it affects the home team. ## What changed for offshoring in 2026? Three US developments matter for 2026 planning: a proposed tax on outsourcing payments, tax rules that treat foreign R&D differently, and AI changing which offshore tasks are worth paying for. None stops offshoring, but each changes the math. Here is where each one stands as of October 2026: - **The HIRE Act is proposed, not law:** [S. 2976](https://www.congress.gov/bill/119th-congress/senate-bill/2976) would impose a 25% excise tax on payments to foreign persons for services that benefit US consumers, and deny the deduction. It has sat in the Senate Finance Committee since October 2025, so nothing is owed today. - **Foreign R&D costs more in cash flow:** Under Public Law 119-21, domestic research costs are deductible again under Section 174A, but foreign research must still be amortized over 15 years, which hits offshore software and product engineering. - **The $100,000 H-1B fee is extended but blocked:** A September 18, 2026 proclamation extended it to September 2027, yet a federal court vacated the fee and it cannot be enforced while the appeal runs. - **AI is repricing routine work:** The Philippine industry group IBPAP cut its 2028 targets in July 2026, citing AI, while demand holds up for skilled, judgment-heavy roles. The HIRE Act targets payments to foreign vendors, so employing your own team abroad is a different arrangement. Keep contracts exitable and check the latest [IT outsourcing trends](https://www.wisemonk.io/blogs/it-outsourcing-trends) before you commit to multi-year deals. ## How do you start offshoring, step by step? To start offshoring, choose the work, set goals, pick a country and operating model, set up legal employment, hire, and manage with clear metrics. Hiring before the model is fixed is the most common and most expensive mistake. Here is the seven-step sequence we use with companies offshoring for the first time: 1. **Pick the work:** choose repeatable, well-documented functions and keep anything that depends on close customer or local-market knowledge at home. 2. **Set goals and KPIs:** decide whether you are after savings, skills, or speed, then fix measures such as cost per role, quality scores, and response times. 3. **Choose the location:** score countries on talent depth, cost, English proficiency, time zone overlap, and legal stability. Our framework for [entering new markets](https://www.wisemonk.io/blogs/global-expansion-strategy-new-markets) walks through the scoring. 4. **Choose the operating model:** compare a vendor, an employer of record, and [setting up your own entity](https://www.wisemonk.io/blogs/employer-of-record-vs-own-entity) on cost, speed, and control. 5. **Set up legal employment:** issue compliant contracts, register for payroll and taxes, and lock down IP and data clauses. 6. **Hire and onboard:** benchmark pay against the local market and onboard people as you would at home. 7. **Manage and scale:** review KPIs monthly for the first quarter, then expand once the model is stable. Following the steps in order keeps compliance surprises from landing after you have already hired. ### Where does an employer of record fit? An employer of record legally employs your offshore hires, handling contracts, payroll, taxes, and benefits while you direct their work. It lets you hire in weeks rather than the months a new entity can take. For most first-time offshoring teams, starting with an EOR and moving to an owned entity at scale is the lowest-risk path. ## How can Wisemonk help you build an offshore team? [Wisemonk](https://www.wisemonk.io/) is an [India-native Employer of Record (EOR)](https://www.wisemonk.io/blogs/employer-of-record). We become the legal employer for your offshore hires, run over $20 million in annual payroll for our clients, and leave the day-to-day direction of the work with you. Here is what we handle: - **Hiring and onboarding:** we source and screen candidates against your brief, issue compliant employment contracts, and complete onboarding paperwork and equipment setup, so new hires start in days. Read more in our [offshore recruitment guide](https://www.wisemonk.io/blogs/offshore-recruitment-complete-guide). - **Payroll and payments:** we calculate gross-to-net pay each month, withhold and deposit taxes and statutory contributions, pay salaries on time in local currency, and send you one invoice. See this guide on [how to pay an offshore team](https://www.wisemonk.io/blogs/how-to-pay-offshore-team). - **Benefits administration:** we set up health insurance, leave policies, and statutory benefits, enroll each employee, and answer their coverage questions, so your offer competes with local employers. Read more about [employee benefits packages](https://www.wisemonk.io/blogs/understanding-employee-benefits-packages-importance). - **Compliance and classification:** we track labor law changes, keep contracts, working hours, and exits compliant, and file every statutory return, so your team is classified correctly and penalty-free. See this guide to [global compliance with an EOR](https://www.wisemonk.io/blogs/global-compliance-eor). - **Contractor management:** if you start with freelancers, we draft compliant agreements, pay invoices on schedule, and convert contractors to employees when the role becomes permanent. Read more on [hiring and paying international contractors](https://www.wisemonk.io/blogs/hiring-and-paying-international-independent-contractors-a-guide). We support global companies hiring in India through EOR, managed payroll, contractor management, and GCC setup. We are currently planning our expansion into future markets including the US and the UK. ### Ready to build your offshore team? Wisemonk employs your offshore hires on your behalf, covering compliant contracts, monthly payroll, benefits, and every statutory filing. [Talk to an Expert](https://www.wisemonk.io/contact) [View our Pricing](https://www.wisemonk.io/pricing) ### What do clients say about working with Wisemonk? Two US clients describe what building a team with us looked like in practice: > “I'm very Happy that I discovered Wisemonk. They have been a pure pleasure to work with, and their attention to detail is impressive. They helped us understand their pricing model, find top-qualified individuals, interview them, and then onboard them. I gave them criteria for the type of people we sought, and they delivered. The individuals they were able to find have been some of the best engineers I have ever worked with. I recommend Wisemonk to anyone who is in need of staffing assistance.” > ***\- Dan Sampson, Head of Engineering, Cobu, USA*** > “The Wisemonk team played a key role in helping us hire for specialized B2B SaaS marketing skills. We were able to build the team within four months, and hire experienced professionals from Tier 1/major B2B SaaS brands. This includes SEO, digital marketing, business development, product marketing, content marketing, and GTM roles. They are a great partner providing integrated services for EOR and recruitment/hiring and I’d recommend them to any B2B SaaS vendor.” > ***\- Saurabh Sharma, Chief Marketing Officer, Onereach, USA*** Both teams kept full control of their people while we carried the employment, payroll, and compliance work. ## Frequently asked questions **What does offshoring mean in simple terms?** Offshoring means having part of your business done in another country instead of at home. A US company might move software development, customer support, or accounting abroad to lower costs or find scarce skills, using either its own staff there or a foreign vendor. **What is the difference between outsourcing and offshoring?** Outsourcing is about who does the work: a third party instead of your own staff. Offshoring is about where the work happens: another country. They can overlap, and moving work abroad to a foreign vendor is called offshore outsourcing, the most common combined model. **How many jobs have been lost to offshoring?** There is no single official count, because offshoring is hard to separate from trade and automation. The Economic Policy Institute links 3.7 million displaced US jobs between 2001 and 2018 to the goods trade deficit with China, mostly in manufacturing. Other economists estimate far smaller net effects. **Why is offshoring controversial?** Offshoring is controversial because its costs and benefits land on different people. Job losses concentrate in particular towns and industries, while lower prices and higher profits spread across the economy. Critics also raise concerns about weaker labor and environmental standards in some destination countries. **What are the main types of offshoring?** The main types are production offshoring, such as moving factory assembly abroad; IT and software offshoring, such as development and testing; and business process offshoring, covering customer support, accounting, and analytics. Each can run through a captive center, a vendor, or an employer of record. **Will the US tax offshoring in 2026?** Not yet. The proposed HIRE Act would add a 25% excise tax on payments to foreign service providers, but it remains in committee and is not law. Separately, foreign research costs must still be amortized over 15 years, which already affects offshore engineering. **What is an example of offshoring?** A well-known example is Nike, whose shoes are made by contract factories abroad. In fiscal 2025, factories in Vietnam, Indonesia, and China made about 51%, 28%, and 17% of Nike Brand footwear, while design and marketing stayed with the company. Share this blog ## Related Blogs ### [Xero vs QuickBooks: Pricing, Features and Which to Pick](https://www.wisemonk.io/blogs/xero-vs-quickbooks) 7 min read ### [Top 10 Navan Competitors and Alternatives 2026](https://www.wisemonk.io/blogs/navan-competitors) 7 min read ### [How to Hire a Salesforce Support and Maintenance Company](https://www.wisemonk.io/blogs/hire-salesforce-support-and-maintenance-company) 5 min read Offshoring & Outsourcing Operations ### [White Label Software Development Services: Models, Costs & Partner Guide](https://www.wisemonk.io/blogs/white-label-software-development-services) 6 min read ## Ready to build your India team? Tell us who you're looking to hire. We'll walk you through exactly how the setup works for your company, your timeline, and your budget. 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