Offshoring

What it means

Offshoring is moving part of a company's activity, such as production, IT, customer support or accounting, to a distant country with lower costs. It may involve the company's own branch or subsidiary abroad or an external provider, combining offshoring with outsourcing.

The main motive is usually saving on labour costs, gaining access to specialists who are scarce at home or providing round-the-clock service thanks to different time zones. Slovakia was long an offshoring destination for Western companies, particularly for shared services centres.

Offshoring differs from nearshoring, where activity is moved to a nearby country with a similar culture and time zone, for example from Western Europe to Slovakia. Nearshoring brings smaller savings but also smaller communication and logistical risks.

How it works in practice

Before relocating, calculate the full cost, including management, travel, translation, quality control and the transition period, not just the wage difference. The savings on paper often shrink considerably once hidden costs are included, especially for complex work.

If personal data of clients or employees are processed abroad, this is an international data transfer requiring appropriate safeguards, such as standard contractual clauses. For accounting, the rules on keeping documents and making them available for inspection must also be considered.

For tax, assess whether activity abroad creates a permanent establishment, how transfer prices between the parent and the branch will be set and whether payments are subject to withholding tax. These questions affect how worthwhile offshoring really is.

What to watch out for

Language and cultural differences, time zones and different work habits can slow collaboration and increase errors. For work that requires close client contact or knowledge of local rules, such as Slovak accounting and tax, offshoring is particularly risky.

Dependence on a distant supplier or branch carries risks from political change, natural disasters or outages. Companies should have a continuity plan, retain control over key knowledge and be able to bring the activity back or move it elsewhere if necessary.