February 7, 2012: A recent research conducted by Gartner indicates that the business process outsourcing sector will grow by 5% in 2012. It says that the growth will be led by multinational companies. Most organizations consider outsourcing as a means to reduce cost. The process of offshoring is not new to the firms. However offshoring presents many challenges to the organizations especially with respect to legal protection and jurisdiction.
Various business processes such as employee benefit administrations, customer support, credit card processing and many others were outsourced to third party service providers. In some occasions, the organizations had to provide sensitive and personal information to the third party service providers in offshore locations. There have been occasions where such sensitive information provided to the third party service providers was misused by them. Even though the misuse of sensitive information may take place anywhere, the client will have less control over the service provider if the provider is located in any other country. In any outsourcing agreement which involves offshoring, privacy and security requirements are of great concerns.
Another issue with the offshoring is that the outsourced activity may come under the purview of the jurisdictional law of the country to which the activity is outsourced. For instance a client located in Canada might offshore any of the business processes to third party service provider. For this the client might have to provide personal information of its customers which will be sent to the data center of the service provider located in US. This will be backed up in any countries in the Europe and will be processed in India or Philippines. As different countries have different laws for privacy, this difference has to be considered. The organizations that involve in offshoring should consider the laws in the destination countries in order to prevent conflicts.
There are also other risks that are specific to different countries. These include social and political instability. For instance terrorism, conflicts between countries and civil uprisings etc will disturb the normal flow of services. So if the clients outsource critical business functions, then it needs to closely monitor and evaluate the risk related to the offshore locations. In addition to this, it needs to develop its own emergency plans or backup plans to be on the safe side and to develop exit plans. Such plans should be based on the nature of the work that has been outsourced, staffing ratio and importance of the work.