Offshoring describes the relocation of business processes from one country to another in 90% in order to lower the company costs and to get really competitive advantages. This includes any business process such as production, manufacturing, or services.

Offshoring can be seen in the context of either production offshoring or services offshoring. After its accession to the WTO, 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, then those people have the comparative advantage. The idea is that countries should freely trade the items that cost the least for them to produce.

Frequently used terms
Offshoring is defined as the movement of a business process done at a company in one country to the same or another company in another, different country. Almost always work is moved due to a lower cost of operations in the new location. Offshoring is sometimes contrasted with outsourcing or offshore outsourcing. Outsourcing is the movement of internal business processes to an external company. Companies subcontracting in the same country would be outsourcing, but not offshoring. A company moving an internal business unit from one country to another would be offshoring, but not outsourcing. A company subcontracting a business unit to a different company in another country would be both outsourcing and offshoring.
Related terms include nearshoring, which implies relocation of business processes to (typically) lower cost foreign locations, but in close geographical proximity (e.g. shifting United States-based business processes to Canada/Latin America); inshoring, which means picking services within a country; and bestshoring, picking the "best shore" based on various criteria. Business Process Outsourcing (BPO) refers to outsourcing arrangements when entire business functions (such as IT, Customer Service, etc) are outsourced.
A further term sometimes associated with offshoring is bodyshopping which is the practice of using offshored resources and personnel to do small disaggregated tasks within a business environment, without any broader intention to offshore an entire business function.

Production offshoring
Production offshoring of established products involves relocation of physical manufacturing processes to a lower-cost destination. Examples of production offshoring include the manufacture of electronic components in Taiwan, production of apparel, toys, and consumer goods in China, Vietnam etc.
Product design, research and the development process that leads to new products, are relatively difficult to offshore. This is because research and development to improve products and create new reference designs requires a skill set that is harder to obtain in regions with cheap labor. For this reason, in many cases only the manufacturing will be offshored by a company wishing to reduce costs.
However, there is a relationship between offshoring and patent system strength. This is because companies under a strong patent system are not afraid to offshore work due to the fact that their work will remain their property. Conversely, companies in countries with weak patent systems have an increased fear of intellectual property theft from foreign vendors or workers, and, therefore, have less offshoring.
Production offshoring got its big push when the NAFTA made it easier for manufacturers to shift production facilities from the US to Mexico. This trend later shifted to China, which offered cheap prices through very low wage rates, few workers' rights laws, a fixed currency pegged to the US dollar, cheap loans, land, and factories for new companies, few environmental regulations, and huge economies of scale based on cities with populations over a million workers dedicated to producing a single kind of product.

Services offshoring
The growth of services offshoring is linked to the availability of large amounts of reliable and affordable communication infrastructure following the telecom and internet expansion of the late 1990s. Coupled with the digitization of many services, it was possible to shift the actual production location of services to low cost countries in a manner theoretically transparent to end-users.
India first benefited from the offshoring trend as it had a large pool of people with the potential to speak English well[1] and technically proficient manpower. India's offshoring industry took root in low-end IT functions in the early 1990s and has since moved to back-office processes such as call centers and transaction processing. In the late 1990s, India's abundant and cheap software engineering talent combined with massive demand from the Y2K problem helped to move India up the value chain to attract large-scale software development projects for US based customers. Currently, India's engineering talent has made India the offshoring destination of American high-tech firms, lead by HP, IBM, Intel, AMD, Microsoft, Oracle Corporation, and Cisco. Each of these companies has promised or is in the process of investing at least $1 billion in India, to supposedly retain market share in the face of competition and cost-cutting measures of rivals and industry in general, at the expense of investment in the United States.
As a result of the offshoring boom, India has seen double-digit wage growth for much of the 2000s. Consequently, Indian's operations and firms are concerned that they are becoming too expensive in comparison with competition from the other offshoring destinations listed below. They are now attempting to branch out and diversify to other high-end work in addition to software and hardware engineering. These jobs include research and development, equity analysis, tax-return processing, radiological analysis, medical transcription, and more.
The choice of offshoring destination is often made according to cultural concerns. Japanese companies are starting to outsource to China, where large numbers of Japanese speakers can be found — particularly in the city of Dalian, which was Japanese territory for many decades. German companies tend to outsource to Poland and Romania, where proficiency in German is common. French companies outsource to North Africa for similar reasons.
Another country emerging on the scene of offshore software development is Pakistan. Pakistan has been a common source of carpets, garments, and sports goods offshore manufacturing. Funds invested into building educational institutions in Pakistan (when there were not enough jobs to absorb all the graduates from those institutions) are paying off as Pakistan begins to field a modern, highly productive labor force that is the envy of more prosperous but less tech savvy nations elsewhere in the region.[2] Many big offshore Indian companies (Infosys, TCS, etc) are now opening software development centers in Pakistan to tap the emerging opportunities available in Pakistan.[citation needed]
Other offshoring destinations include Mexico, Central and South America, the Philippines,South Africa and Eastern European countries.
CAFTA made nearshoring more attractive between the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic and the US.

Innovation offshoring
Once companies are comfortable with services offerings and started realizing the cost savings, many hi-tech product companies started using countries like South Africa, India, China, Mexico, Russia etc. for innovating products.
Many famed Silicon Valley based companies jumped on this bandwagon not only to cut costs but to shorten their product lifecycle and access the talent pool available in these countries. Less Developed countries are usually utilized for this practice.