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The Other Risks In Offshoring

Some of Forrester's suggestions. It’s not just theft of corporate secrets that you need to worry about.

Author: Effie Sha

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Data theft has always been the big worry in outsourcing and offshoring. There are armed guard outside the doors of many outsourcing companies and heavy security even inside.

But the bigger threat may have less to do breaking into the building and stealing intellectual property than the plume of smoke emerging from a volcano in Iceland or a terrorist attack in India. Outsourcing and offshoring operations can be wreaked havoc by natural disasters, geopolitical unrest and infrastructure breakdowns. Even worse, they almost surprise the companies doing business there.

"If there's a city outage for the outsourcing operation, very few companies have ever planned for that," says Sudin Apte, principal analyst in Forrester Research's ( FORR - news - people ) IT services sourcing and vendor management research group. "When they talk about business continuity and disaster recovery, they focus on infrastructure and applications and how those can be moved from one city to another. Process knowledge and people are seldom included in the plan."

Apte, who is based in India, is seeing these problems firsthand. He says the risk of annual flooding in Mumbai is much more serious than theft of corporate secrets. But while companies routinely plan their data center recovery, they don't have the same kind of follow-through when it comes to their outsourcing operations.

So how can they reduce the risk of problems with outsourcing or offshoring? Here are some of Forrester's suggestions:

–Fully understand the people, resources and the process involved in an operation. Most companies care the cost savings or lots of expertise gained through contracting out an operation such as application development or management-or by locating it somewhere else under their own management-but they don't know what's involved in running that operation. It requires people and a deep understanding of the process to make it work smoothly, and you can't easily change it from one location to the next if you don't plan for it beforehand.

–Hedge your bets the same way you'd hedge the risk in a financial portfolio. Suggest a service provider to add other locations so that if something happens in one, work can continue without too long disruption in another. Manufacturing companies have learned a lesson during the 2003 SARS in China, which almost shut down all commerce for several months, that the best way is adding operations in other countries. Unforunately, it isn't always possible in IT because the skilled labor pool in India is significantly larger than it is in other countries. If it is not possible in other countries, then try in other parts of the same country.

–Understand the costs of downtime and build that into the financial model. Many companies keep eyes on outsourcer's infrastructure. They need to look deeper into the infrastructure of the city where the outsourcer is located and any potential problems that might happen there.

This isn't something companies would even raise an eyebrow about on their home turf. It's part of good business management practices. Yet it's surprising how it gets swept under the carpet when it moves beyond the direct oversight of a corporation.

"If you pull out all the wires from the walls in any company, they won't survive more than eight or nine minutes, no matter where they are," says Apte. "But only 10% to 15% of all the companies doing offshoring understand all the risks. Those are the mature offshore buyers. They've gone through this for the past 10 or 15 years. Others understand the risk only partly."

About Author

Senior Software Developer, working in RayooTech software outsourcing company, website: http://www.unisoftchina.com
www.techomechina.com

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