Offshoring is the process of moving operational functions abroad. A distinction can be made between internal and external offshoring. The former refers to the transferring of functions within an internationally operating organization. External offshoring, also called “offshore outsourcing,” on the other hand, means the contracting of functions to a third party organization that is located abroad.
In the literature, yet another distinction is made between “farsourcing” and “near-sourcing.” Nearsourcing refers to outsourcing to nearby countries (e.g., from the United States to Canada or Mexiko), farsourcing to more distant countries, typically on a different continent. The main reason for offshoring is usually the lower local production costs. Another motive for offshoring, which is becoming increasingly important, is to exploit the local potential of skilled labor.