Right-shoring IT Service Delivery – Not just Labor Arbitrage

As we look at IT off-shoring, near-shoring, and right-shoring, the focus is typically on cost savings.  Obviously, this is for good reason—cost savings are usually and quite appropriately the primary reason for considering service delivery outside of one’s main country of operations.  The savings are potentially huge.  To look only at cost savings, however, is short sighted and may cost your company more than you save due to resulting poor quality services, customer churn, and unproductive employees.  Done right, however, remote service delivery can provide significant cost savings, high quality and timely services, and other key benefits.

When we look at service delivery models, we’re trying to achieve cost savings, but also effective service delivery.  Effectiveness most typically means provision of high-quality services in a timely manner.  Other key objectives may include compliance, security of intellectual property, and management of risk.

While most multi-national enterprises use some mix of offshoring or nearshoring, many smaller enterprises and SMBs do not.  Typical fears that keep companies from doing so are that you get what you pay for (low pay = low quality work) and concern that your company may not have the expertise to properly manage decentralized service delivery.  This latter concern is more prevalent in companies with no or limited international coverage.

I have both heard the anecdotes of those who have seen poor quality, off-shored service delivery and have also experienced it personally in a previous corporate environment.  On the other hand, I have also personally seen amazing quality work done by skilled tech workers in low-cost countries. The difference in success is frequently due to experience and cultural affinity.  In particular, I’ve seen the difference that an experienced service provider can make in assisting companies who find right-shoring more challenging due to their limited multi-national experience.

Before going further, let’s define these different types of service delivery and talk briefly about their strengths and weaknesses.

IT On-shoring is the provision of IT services from your main country of operations.  It’s simpler than other models and is based on the ease of communication and collaboration.  Why is it easiest—because you share the same language, the same or a relatively close time zone, and the same cultural work norms.  You can even have in-person meetings or travel to the place where service delivery is taking place relatively easily.

In addition to ease of communication and collaboration, on-shoring can offer other benefits.  For example, in government and highly regulated industries, in-country service delivery may be mandated.  And even if it’s not mandated, you still may be unwilling to move service delivery outside the country due to security concerns (present or potentially future).

So why wouldn’t you always on-shore service delivery?  The biggest reason is obviously cost.  The U.S. and other developed countries have high labor costs.  Although automation is lowering labor costs and rising wages in other countries are slimming the savings, the cost savings of offshoring in many cases can still be quite significant.

Other reasons may also make onshoring a sub-optimal choice.  For example, with on-shoring, you lose the off-shoring geographic differences that can facilitate 24×7 technology operations and make business continuity easier.  Furthermore, local, skilled labor shortages may make the pool of highly skilled off-shore workers quite attractive.

IT Off-shoring is the provision of IT services from one or more countries that are far from your main country of operations.  The most typical countries providing offshore IT services are India, China, and the Philippines.  The benefits and deficiencies of IT off-shoring are in many ways the mirror image of the those of on-shoring.  Cost advantages of offshoring can be huge.  The talent pool from India and China, the world’s two largest countries, is quite significant and can fill on-shore talent gaps.  Furthermore, the ability of these countries to complement U.S. working hours is very helpful in supporting 24×7 operations and in speeding projects where teams are split between North America and Asia.

Although communications and collaboration with distant countries can sometimes be challenging, digital tools can mitigate these differences.  The Covid pandemic has forced most companies to become much more adept at remote workforce models.  Many remote teams in off-shore countries are willing to work off hours to accommodate U.S. time zones.  Furthermore, India and the Philippines are English-speaking countries.

As an American, I remember a very humorous audio clip that made it around the internet a number of years ago, about the difficulties when an Australian telecommunications company outsourced its customer support to India.  The Australian man (speaking in heavy Australian slang) was making little sense to his Indian customer support agent.  The funny thing, as an American, was that I understood the Indian customer support agent much better than I did the Aussie.

IT Near-shoring represents a middle ground between on-shoring and off-shoring.  Near-shoring is the provision of IT services from a nearby country in a similar time zone—most typically for the U.S., either Mexico or Costa Rica.  With near-shoring, cost savings are not quite as large as with off-shoring, but communication and collaboration are easier due to nearby time zones and more similar work culture norms.  Furthermore, visits to service delivery centers are easier due to the closer geographic location.

Right-shoring is the strategic choice of on-shoring, off-shoring, near-shoring, or hybrid service delivery based on the needs of individual companies or projects.  Of particular interest is hybrid service delivery, which allows balancing the benefits of on-shoring, off-shoring, and near-shoring and the concerns of the other models in order to provide the optimal mix to ensure cost savings, effectiveness, high quality, security, and compliance.  With hybrid service delivery, individual projects themselves may be split between two or even three of the models to achieve optimization.  Of course, achieving effectiveness with this hybrid model is only possible with strong management and coordination.

So with right-shoring, how do you optimize and balance between the other three models?  There is no one right answer.  Not only is the answer for a U.S. military contractor quite different from that of a retail firm, but the answer may differ even for companies in the same industry.

Transactional services are typically much easier to off-shore or near-shore, although even much more complex projects and those requiring key on-shore linkage can be handled through hybrid teams, provided that the service provider has sufficient experience in management and controls.

Furthermore, the answers will differ based on the company’s global operations or the global, cultural, and operational expertise of its service providers.

For example, Celsior leverages not only its global presence in India, the Philippines, and Mexico, but also its many years of best-shoring experience and the bi-cultural affinity of a number of its American citizen, but India-born management team members.  Celsior also has a rare model that focuses on co-creation and knowledge transfer with its clients.  This helps our clients avoid the risk from loss of intellectual property and control.

IT right-shoring is the key to optimally achieving your goals of cost savings, effectiveness, timely service delivery, customer satisfaction, and employee productivity.  If you are not already pursuing a right-shoring strategy, Celsior would be happy to talk to you to discuss how you can achieve these objectives.


George Ferguson
Marketing Lead

Similar Blogs/Articles/Briefs

Elevate your overall success