Companies look to cut the risk to data by looking at "near-shoring"

April 26 2005

Security and privacy concerns are becoming the biggest issue for companies considering outsourcing their IT projects to companies offshore. Analyst house Gartner said that this year concerns about job losses will be overshadowed by these security issues. Gartner research director Ian Marriott commented: "This will become the top issue for companies taking their work to other parts of the world."

In certain regions - such as China, Russia and the Baltics - concerns remain around issues such as government interception and access to data, and controls restricting the use of encryption, Gartner said.

There are also concerns about intellectual property risks - in terms of enforcing patents laws, copyright and trade secrets. By contrast, the risk of these problems is lower in other countries - such as Canada, Ireland and Australia - which also offer offshore IT services.

As a result some companies may look at building their own "captive" data centres in order to guarantee data security, or might consider outsourcing some services to countries with lower levels of risk. "If they are looking to cut back on some of the risk they may look at more near-sourcing options," said Marriott, speaking at a Gartner outsourcing conference in London. Gartner also predicted that, over the next three years, some Indian salaries for application-related services will increase by 35 per cent to 60 per cent.

Despite this, it envisaged even reduced cost savings being enough to drive continued demand. "Companies will continue to find sufficient benefit because there are other benefits being delivered as well as the cost savings," said Marriott. According to the analyst house, worldwide spending on IT services delivered by nearshore and offshore companies will exceed $50bn within two years.

Commenting on this news, The Continuity Forum believes that the serious consideration now starting to be shown concerning the broader Risk issues is a small but positive step in the right direction. “By recognising that organisations need a balance between Risk and reward with regards to outsourcing we will hopefully see a better and more consistent approach the management of Risk in these complex outsourcing deals. It is easy to be lured by the promise of cheaper labour costs, but what about the downsides!

From our own research, we know that many contracts are signed with only ‘lip service’ given to the BCM arrangements and as over half of the G2000 companies are testing their own systems and procedures on a regular basis what confidence can we have on the level of planning and testing arrangements of distant outsource partners.

The news on ‘near-sourcing’ could mark the start of a reappraisal of the importance of Risk and Continuity planning in the outsourcing sector and indications suggest that this may be down to a renewed regulatory focus on the importance of these disciplines. It will also provide companies who face fierce cost based competition from regions with a very much lower labour cost with the opportunity to demonstrate that investing in Continuity and Resilience measures will make them a better choice over regions which do not have the same level of Infrastructure resilience.”

To find out more about how the Continuity Forum can help your organisation plan for and address a wide variety of Business Resilience and Continuity issues, please contact us directly HERE! or call on 020 8993 1599.