Offshore manufacturing means moving all or part of a manufacturing or assembly activity to another country. The production may be carried out by a company’s own foreign affiliate or by an independent supplier.
The term is also called production offshoring. It is part of offshoring, which can involve services as well as physical goods.
Location and ownership are separate questions
A company that transfers assembly to its own foreign subsidiary has offshored that activity while keeping it within the corporate group. A subsidiary is a company controlled by another company.
If the activity goes to an independent foreign manufacturer, the arrangement combines offshoring with outsourcing. Outsourcing concerns who performs the work; offshoring concerns where it is performed.
Eurostat’s international-sourcing definitions distinguish transfers to affiliated enterprises from transfers to outside suppliers. Its relocation measure also excludes pure expansion, such as a new foreign production line with no existing business function moved. Everyday descriptions of manufacturing abroad can be broader.
Where can the finished goods be sold?
There is no requirement that goods made offshore must be sold back in the company’s home country. A factory can supply its local market, the home market, third countries or a combination of them.
For example, imagine a company transferring assembly from Country A to Country B. The foreign factory might supply customers in both countries and distributors in Country C. Those sales destinations do not change the fact that assembly was relocated abroad.
Why factory prices are only part of the cost
Lower wages or production costs can motivate a move, but they do not guarantee a lower delivered cost. Freight, insurance, customs duties, inspection, inventory and coordination can affect the comparison.
Suppose an overseas factory cost is $8 per unit. Adding $2 for freight and insurance and $2.50 for duties and other allocated costs produces a $12.50 total. If the comparable domestic delivered cost is $12, the overseas option is $0.50 more expensive in this fictional example.
Trade rules and production decisions
The United States-Mexico-Canada Agreement, or USMCA, replaced NAFTA on July 1, 2020, as the Office of the US Trade Representative records. NAFTA should therefore be described as the earlier agreement.
A trade agreement does not mean every shipment automatically receives duty-free treatment. Applicable rules of origin, which determine a product’s economic origin, and other relevant import requirements matter.
Production location can also affect access to skills, suppliers and customers. Longer lead times, disruptions, quality control and protection of intellectual property can create trade-offs. These depend on the particular operation rather than a universal ranking of countries.
Last checked and updated on November 2, 2026 by the MBN editorial team.