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The Risks of Offshore IT Outsourcing

Posted On: May 03, 2016

Topic: Cloud & Hosting Solutions

offshore-it-solutionsThe offshoring phenomenon has been with us for some time now. The Internet has created a global network infrastructure, making it possible for routine tasks and support processes to be migrated overseas, mostly to reduce operating costs. However, more businesses are finding that offshoring isn’t always as cost-effective and safe as it might seem. In customer service, for example, many companies are pulling their call centers back to North America due to training and service problems with overseas call centers. Considering your data is the lifeblood of your business, is outsourcing the right move?

A study by the University of Michigan Business School and eePulse, Inc., shows that the majority of executives are starting to see the limitations of offshore support. The study shows that while 74 percent are planning to outsource, 94 percent say they are sending only 25 percent or less of their outsourcing overseas. India continues to be the most popular destination for outsourcing (more than 33 percent), but other destinations such as China (15 percent), Canada (6 percent), Mexico (6 percent), Taiwan (5 percent), and Malaysia (4 percent) are gaining in popularity, but only for certain support functions.

When it comes to IT, offshore outsourcing continues to decline. In fact, offshore IT outsourcing contracts have been shrinking at a rate of 20 percent according to the Everest Group. So why the shift away from an offshore support strategy?

You Get What You Pay For

The attraction to overseas outsourcing has traditionally been reduced costs. By moving support services to India or China, for example, businesses look to take advantage of cheaper labor with lower overhead. However, more executives are beginning to recognize the tradeoffs: reduced cost of outsourcing equals reduced performance and increased risk.

The cost of cheap labor, after all, may not be that cheap. Less expensive personnel often requires more training and more management, which can actually increase overall costs. Although offshore outsourcing may still be well-suited for many organizations, to remain cost-competitive, offshore suppliers are finding they have to apply a “one-size-fits-all” service model. Therefore, if your business needs fall outside the defined “normal” parameters of service, costs may increase and/or service could be lacking.

After more than a decade of IT outsourcing challenges, executives are starting to ask harder questions and look more closely at true costs. Previously overlooked factors such as work philosophy, language barriers, infrastructure and knowledge transfer often make offshore outsourcing less cost effective, which means it makes business sense to keep operations closer to home.

Can You Keep Your Data Safe When It’s Offshore?

Security and regulatory risks are the greatest concerns when it comes to outsourcing. Some IT projects should not be sent offshore, while others can be sent overseas — but you must understand the risks of offshore outsourcing:

  • First, consider the risk of granting outside overseas engineers access to your enterprise infrastructure. Can you monitor their remote data access? Do you have measures in place to prevent potential abuse or theft of intellectual property? If you become aware of abuse or theft, are there protocols for prosecuting in the country where the person resides? And, how quickly can you remove their access from your internal systems? Addressing these types of questions will simplify your decision to outsource offshore.
  • Second, consider the type of work you’re looking to send offshore. For instance, if you have engineers working overseas or providing production support, they usually require access to your sensitive data systems, which increases your level of risk. On the other hand, software development usually doesn’t require access to your sensitive data, which means lower risk and possibly makes this a better option when it comes to offshore outsourcing.
  • Other areas for consideration are privacy laws and outsourcing governance regulations. For example, if your company is in healthcare, offshore outsourcing could place access to sensitive patient information in violation of the Health Insurance Portability and Accountability Act (HIPAA). Similarly, providing offshore engineers access to payroll or tax records that include social security numbers would also be an unacceptable risk and a violation of privacy laws.
  • Intellectual property is another area of concern. Giving offshore service providers access to proprietary source code or sensitive data could pose a business risk. This is especially true when you consider that copyright and intellectual property laws differ widely from country to country.
  • There is also another risk when it comes to storing sensitive information offshore. Data stored offshore is subject to laws of the host country in which that data resides. So, if your stored data could be seen as a potential threat to the local government in another country, or if the local laws allow, your data can be accessed by the offshore government, which could result in the compromise of your intellectual property or proprietary data.

Look at the Big Picture

When you consider the whole picture, moving IT support offshore may have added costs and risks. Before looking overseas for business-critical computing support, consider looking local and closer to home. OneNeck IT Solutions, for instance, has over 550 employees based around the United States and nine top-tier data centers in the Midwest, Arizona and Pacific coast.

By keeping your IT support closer to home, you alleviate a number of risk factors, including local privacy laws, data security and cultural challenges. There is a surprising amount of knowledge transfer required to support offshore services, and that support effort tends to be ongoing due to continual staffing changes. Working with a U.S.-based firm means you have access to experts who have a similar understanding and training to deal with common IT challenges. It’s also easier to address best practices and manage quality of service with a company that is closer to home. Plus, it makes it easier to address U.S.-centric concerns such as regulatory compliance.

Over time, executives in all industries have discovered a number of hidden risks and costs associated with going offshore. When you take a closer look at offshore support requirements versus the cost of keeping IT support close to home, the local option proves to be extremely competitive on price and generally superior in capabilities and service.

Contact OneNeck today to talk about staying local. Find out how you can get more return from your outsourcing strategy by working with the right partner, right here.

Download our 10 Reasons to Avoid Offshore Outsourcing infographic.

Topic: IT Outsourcing