Offshore Outsourcing Has Risks


Offshore outsourcing has proven to be an effective method for firms to increase profitability and to stay competitive in the global marketplace. Yet, with these gains one must address and manage the risks involved to be successful. The risks include cultural differences, communication, quality measurement, managing specifications, security, and organizational issues.

Cultural differences can cause risk when you presume that your culture does things the right way and that other cultures do things the wrong way. Worse yet is when you assume that everyone understands your culture, or when you assume that you know theirs. Although these biases are not specifically American, it might seem so when you talk to other executives from foreign companies that work with American companies. American companies come across as both arrogant and ignorant at the same time. US companies will be well served to solicit help from international business consultants when doing business with a different culture for the first time.

Communication is fraught with risk due to time zone differences, language differences, and technology challenges. Dramatic time zone differences can slow communication in our fast paced business world, while language differences can cause errors and rework in addition to conflict in the workplace. Both the offshore outsource partner and the US headquartered firm need to invest in staff who are fluent in the language and have specific cultural knowledge.

Quality measurement is risky due mainly to differing methodologies for measuring quality along with the ownership of the quality process itself. Outsourcing partnerships must agree to a standard measure of quality and to the steps in the measurement process such as design reviews, which might catch quality problems before they happen. This could include inspections throughout the process along with orders “padded” with additional inventory to account for unexpected quality problems. Also, there is no substitute for strong documentation of work processes to insure adherence to quality standards.

Managing specifications or requirements can be a troublesome area and once again is a problem stemming largely from poor communication and rushed schedules. The offshore partner can be pressed to meet tight schedules without proper “pre-flight” planning. This pre-flight planning time is well spent on the front end of a project since expectations can be thoroughly communicated along with concrete specifications of the final product. Slowing down and verifying milestones and commitments makes for successful projects, while last minute expedites and verbal instructions open the project to unnecessary errors.

Fears of security breach or loss of intellectual property are real concerns, too. In this case, extensive reference checking is in order to verify the integrity of the partner before going into contract. Additionally, an outsource partner should have documented policies protecting the rights of the US based firm; of course, this policy needs enforcement. A good rule of thumb is to provide sufficient sensitive information needed to complete the work, but no more than that. Auditing the outsource partner’s facility ahead of time is a good idea; the audit should include a viewing of the security policies and inspecting the physical plant for security.

Finally, US organizations may be structured and operate differently than the partner organizations. Accommodations to these differences might include routine meetings with key project management personnel from both sides; weekly meetings may prove the best frequency. These meetings should include the review of project status reports while providing a forum for problem solving.