Essential Offshoring Terms You Should Know

Offshore has become a core strategy for U.S. companies looking to expand capacity, accelerate delivery, and optimize costs. But even experienced leaders can struggle with the terminology used across global development teams and vendors. Misunderstanding a single term can lead to mismatched expectations, unclear responsibilities, and costly delays.

This guide explains the essential offshoring terms every U.S. business leader, product manager, or technical stakeholder should know—in plain, practical language. Whether you’re preparing for your first project or refining an existing partnership, these terms will help you communicate confidently and make better decisions.

1. Offshoring vs. Outsourcing: Understanding the Foundation

Although often used interchangeably, these terms mean different things—and understanding the distinction sets the stage for everything else.

Outsourcing

Outsourcing simply means delegating a business function to an external partner. The partner can be located in the U.S. or abroad. For example, you may outsource QA to a U.S.-based agency.

Offshoring

Offshoring refers specifically to outsourcing work to a team located in another country, typically one with a lower cost structure and strong engineering talent.

Key takeaway for U.S. buyers: 
Outsourcing is about who does the work; offshoring is about where the work is done.

Learn more: Offshoring vs Outsourcing: Which One Outweighs The Other?

2. Key Delivery Model Terms

Understanding delivery models helps U.S. companies evaluate the right structure for their project and budget.

2.1. Offshore Development Center (ODC)

A long-term, dedicated team set up for a client, often functioning as an extension of the company’s engineering department.

Best for: Ongoing product development or scaling teams over time.

2.2. Dedicated Development Team

A team of engineers who work exclusively on your project, typically on a full-time basis but without building a long-term “center.”

Best for: Mid- to long-term projects that require stable capacity.

2.3. Staff Augmentation / Extended Team

You “rent” specific developers or specialists who integrate with your internal team.

Best for: Filling skill gaps, accelerating delivery, or expanding velocity.

2.4. Project-Based Outsourcing

A vendor delivers a predefined project with a fixed scope and timeline.

Best for: Well-defined requirements or one-time builds.

3. Common Pricing and Engagement Terms

Pricing models shape risk, flexibility, and predictability, three factors U.S. businesses prioritize.

Fixed-Price Contract (FP)

You pay a set amount for a predefined scope.

• Pros: Predictable cost
• Cons: Low flexibility; changes require renegotiation

Time & Materials (T&M)

You pay based on actual hours worked.

• Pros: Flexible and ideal for evolving requirements
• Cons: Requires oversight and clear communication

Milestone Billing

Payments are tied to completing specific deliverables or phases.

• Pros: Good balance of structure and flexibility

Retainer Model

A client pays a consistent monthly fee for guaranteed resources or support hours.

• Pros: Predictability and stable support

Blended Rate vs. Role-Based Rate

• Blended rate: One average hourly rate across all roles

• Role-based rate: Different rates based on seniority or specialty
  U.S. companies often choose blended rates when optimizing for simplicity and predictability.

4. Process and Delivery Terms You’ll Hear Frequently

Most offshore teams use Agile processes. Knowing the vocabulary ensures smoother communication.

Agile / Scrum / Kanban

• Agile: Iterative development philosophy

• Scrum: Agile framework with sprints, stand-ups, retrospectives

• Kanban: A visual workflow system focused on continuous delivery

Sprint Planning, Backlog, and Velocity

• Backlog: List of prioritized tasks

• Sprint planning: Meeting to define tasks for the next sprint

• Velocity: How much work a team completes per sprint; helps forecast timelines

Stand-Ups, Demos, and Retrospectives

• Stand-ups: Daily progress updates

• Demos: Show completed work at the end of a sprint

• Retrospectives: Identify what to improve for the next sprint

QA, UAT, and Regression Testing

• QA (Quality Assurance): Checking for defects

• UAT (User Acceptance Testing): Ensuring the product meets business needs

• Regression testing: Ensuring new changes don’t break existing features

For U.S. stakeholders, understanding who owns which testing responsibilities is critical to avoiding gaps.

5. Security, Legal, and Compliance Terms

These terms carry significant weight for U.S. companies—especially those in regulated industries.

NDA (Non-Disclosure Agreement)

Protects confidential information shared during discussions or collaboration.

IP Ownership / Work Made for Hire

Specifies that all code, designs, and deliverables belong to the client. Important for U.S. companies: Ensure IP is assigned to you by contract, not by assumption.

SOW (Statement of Work)

Defines deliverables, timelines, responsibilities, and requirements.

MSA (Master Services Agreement)

A broader legal agreement establishing terms for the entire relationship.

SOC 2, ISO 9001, ISO/IEC 27001

Compliance standards that indicate mature processes for quality and security.

Data Residency & Cross-Border Transfer

Clarifies where data is stored and what laws apply, including GDPR for European data.

6. Communication and Collaboration Terms

Clear communication practices are essential for distributed teams.

Time Zone Overlap

The number of working hours is shared between your team and the offshore team. U.S. teams typically aim for 2–4 hours of overlap per day.

Communication Cadence

The structure and frequency of meetings and updates.

SLAs (Service Level Agreements)

Defines response and resolution time expectations for support or critical issues.

Escalation Path

Who to contact, and in what order, if something goes wrong.

7. Quality and Performance Measurement Terms

KPIs (Key Performance Indicators)

Common metrics include:

• Delivery accuracy

• Sprint predictability

• Defect rate

• Cycle time

Code Review Standards

Defines how code is evaluated before merging.

QA Coverage

Percentage of functionality tested.

Productivity Metrics

Focus on outcome-based measures, not just hours logged.

8. Quick Reference Glossary (Short Definitions)

A–Z list for scanning:

• Agile: Iterative delivery approach

• Bench: Developers not assigned to a project

• Dedicated team: Exclusive engineering team

• Milestone billing: Payments tied to deliverables

• ODC: Long-term offshore development center

• SLA: Response/resolution expectations

• Sprint: 1–2 week development cycle

• UAT: Business validation before release

Conclusion

Familiarity with offshoring terminology isn’t just helpful, it directly impacts communication, expectations, and the overall success of partnerships. By understanding these core terms, U.S. companies can make more informed decisions, avoid misalignment, and confidently manage global development teams.