The Risks In Offshore Outsourcing

Outsourcing, specifically offshore outsourcing is growing at a promising rate every year and shows no signs of slowing. Although some organizations have apprehensions on taking on this venture, it has not stopped the development of offshore outsourcing.

However, just like with anything else in the business world, there are always risks entailed with every endeavor and offshore outsourcing is not an exception. There are quite a few risks that organizations which, practice offshore outsourcing or those who are planning to, should know about.

Data Protection

Security practices differ from country to country that is why it is a must to check whether the vendors you have partner up with has the kind of protection and security practices that your company requires. When working on international business, the risk of security leakages is high. Although this is not really that much of a major concern in offshore outsourcing, data protection and security should be implemented as much as possible.

Cost-Reduction Expectations

Organizations automatically assume that they will be able to save a lot basing on a man-to-man comparison. This should not be the case since there are hidden costs that underlie in different offshore outsourcing models. Cost-reduction expectation should also take this into consideration. The cost savings in offshore outsourcing is gradual and does not happen in a short span of time.

Loss of Business Knowledge

There are some organizations that have business knowledge that is inherent only with the developers of applications. This knowledge could be a competitive advantage over other companies in the same industry. It should be carefully evaluated whether such knowledge base is to be outsourced or not since doing so entails the risk of losing this to other companies.

Failure of Vendor Organization to Deliver

It is important to always have a backup plan in case the vendor organization fails to deliver. This however rarely happens but it does and can happen. The client company should assess the different consequences if such thing should happen. Will it make a big impact on the company? What can the company actually do if it happens? Analyzing these risks is very crucial when offshore outsourcing.

Government Policies

When offshore outsourcing, you need to ensure that the vendor organization you have team up with follows the rules and regulations stipulated by the local government. Mostly, the issue of transparency is most important here given that this is part of the USA Patriot Act.

Cultural Differences

Although some nations, such as India, are proficient in speaking the English language, there are still some noticeable differences such as in pronunciation, accents and diction.

Not just with language, there are certain cultural differences that could become problematic in the future. This includes difference in religions, the way of dressing and communication – the way how messages are conveyed to superiors or underlings.

Knowledge Transfer

It takes time and a lot of effort to transfer knowledge from the client company to the vendor organization. It has been observed that during the initial stages of the agreement that there is a decline in productivity. This is due to the fact the most of the time during the initial stage is spent on transferring knowledge.

Different strategies may need to be implemented to increase the pace of knowledge transfer thus increasing the productivity level only in a short amount of time.