Although the potential for offshoring R&D and engineering work is significant, companies face several previously undefined challenges. We used data from large global engineering companies to identify challenges in engineering service offshoring, the extent such challenges can negatively influence offshore performance and how managers can effectively reduce or mitigate outstanding challenges. We noticed that miscommunication, lack of IT tools and solutions, effective task identification of larger engineering work packages, transfer of jobs and non anticipated costs have the most negative influences on offshoring engineering performance but that these could be dealt with in rather cost effective ways. Although we identify a list of challenges in offshore engineering services, expert interviews indicate a great potential to address the prominent problems and thus support the potential of current companies engaged in such a strategic change of their R&D operations.