This is the most typical format for contracting software development services. It refers to working with a company that doesn’t border the host country. Common routes include America to Eastern Europe or Western Europe to India.
The main reason people cite for it is efficiency. You get a lot more bang for your buck when hiring an outside company. There are two major factors that influence the price difference. One is the above mentioned lower cost of living. The other is government regulations that favor outsourcing providers. Aristek, for example, enjoys relaxed document management requirements that allow us to offer lower prices without compromising the quality.
Another reason to go for it is availability. Companies in North America often experience a shortage of developers. Those available get hired by FAANG and other major companies. However, foreign companies have qualified people on hand.
The third reason is know-how. Knowledge of specific business domains (Logistics, eLearning, Oil & Gas, etc.) or technologies (AR/ VR, Machine learning) is hard to get. Offshore vendors offer exactly that.