What it means
For years many companies moved work offshore, to countries with lower wages, in the hope of saving money. Over time some found that the savings were smaller than expected once management time, rework, delays and communication problems were included.
Right shoring grew out of that experience. The idea is to match each task to the best location, whether that is onshore (in the home country), nearshore (in a neighbouring country or similar time zone) or offshore (in a distant, lower-cost country).
A routine data-entry task might go offshore, a customer support function might go nearshore to share working hours, and a sensitive finance function might stay at home for control and compliance. Cost is only one factor.
Companies look at the skills available, language, time-zone overlap, legal and data-protection rules, political risk and the strength of the local talent market. They also weigh how much the work needs face-to-face contact with customers or with other teams.
The analysis should use total cost rather than hourly rates. Total cost includes wages, management and coordination, travel, technology, training, rework and the risk of disruption.
A location with a very low hourly rate can end up more expensive if quality problems force the work to be repeated. Right shoring is not permanent.
Wages rise, new talent hubs emerge, regulations change and technology can shift the balance, so companies review their footprint regularly. Finance teams often lead these reviews because they have the data to compare locations on a like-for-like basis.
A common variant is to build a mix of locations, which spreads risk and gives the business flexibility if one location faces problems. The trade-off is greater complexity, because managing several sites needs strong processes and clear responsibilities.
In practice
Real-world examples.
Example
A bank moves its routine invoice processing to an offshore centre, where it costs about half as much. It keeps credit decisions and regulatory reporting onshore, because those functions need close supervision and strong knowledge of local rules. Each year the finance team reviews the split against actual costs.
Example
A software company with customers in North America opens a support team in a neighbouring time zone. Staff work the same hours as their customers, so response times improve without paying onshore salaries. The company also finds it easier to recruit bilingual staff in the nearby location.
Example
A manufacturer that moved production overseas finds that delays and rework are wiping out its savings. It brings the most complex product line back home and keeps simple assembly offshore.
Formula
Calculation
Total cost = (Hours x Hourly rate) + Coordination cost + Rework cost
Suppose a company needs 20,000 hours of back-office work a year. Onshore the rate is $60 an hour, nearshore it is $40, and offshore it is $25. Coordination costs are assumed to be 0% onshore, 5% of labour nearshore and 15% offshore, and rework costs are assumed to be $0 onshore, $20,000 nearshore and $60,000 offshore.
Onshore: 20,000 x $60 = $1,200,000 + $0 + $0 = $1,200,000
Nearshore: 20,000 x $40 = $800,000 + $40,000 + $20,000 = $860,000
Offshore: 20,000 x $25 = $500,000 + $75,000 + $60,000 = $635,000
Offshore is cheapest on paper, but if the work is sensitive or needs close contact, the company may choose nearshore or onshore despite the higher cost.Case study
Seen in the real world.
Orchard Insurance is a fictional company used in an illustrative scenario. Ten years ago it moved all of its claims processing to a distant offshore centre to save on wages.
A review shows hourly costs fell by 60%, but customer complaints doubled and many claims had to be reopened. After adding coordination, training and rework, the real saving was only about 20%. The company decides to move complex claims back onshore, send mid-complexity work to a nearshore hub and keep simple data entry offshore.
Within a year, total costs are 12% lower than before the review, and customer satisfaction scores have risen to their earlier level. The finance director concludes that the lowest hourly rate was never the real goal; the goal was the lowest cost for work done properly.
Watch out
Common mistakes.
- Choosing a location by hourly rate alone. Management time, rework and delays can wipe out the apparent savings.
- Treating the decision as permanent. Costs, skills and regulations change, so the location mix should be reviewed regularly.
- Ignoring risk. Political events, natural disasters and data-protection rules can all disrupt a location.
Questions
People also ask.
What is the difference between nearshore and offshore?
Nearshore means a nearby country or one in a similar time zone, while offshore means a more distant, often lower-cost location.
Is right shoring the same as reshoring?
Not exactly, because reshoring means bringing work back home, while right shoring is about choosing the best location for each task.
Who decides where work goes?
Usually senior management, working with finance, operations and legal teams. Finance supplies the total cost comparison that makes the debate concrete.
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