Offshoring (Operations Management)

The concept of offshoring is introduced in this short revision video for business students.

What is offshoring?

Offshoring involves the relocation of business activities from the home country to a different international location.

It is the changed international location of where the business activity is performed that is key to understanding offshoring.

Offshoring has traditionally been associated with the relocation of manufacturing activities from a domestic economy overseas (e.g. from the US to China, or UK to Poland).

However, offshoring is also increasingly common with business services (e.g. UK financial services using call centres based in India).

Why might a business decide to change the international location of where its business activities are undertaken? Key reasons include:

To access lower manufacturing costs (particularly in emerging markets which enjoy the advantage of lower labour costs)
To access potentially better skilled & higher quality supply
To makes use of existing capacity overseas
To take advantage of free trade areas and avoid protectionism
To make it easier to supply target international markets (where it is important to be located in, or near to, those markets)