Volonino & Robinson Principles and Practices of Information Security Chpt 5, p. 71

Here are some older examples

1. Pirates of the Caribbean

- The East India Company - founded in 1600, and given a royal charter by the Queen to trade in the East Indies
- it waged war, bought and sold slaves, had military and  government functions - some of which were noted in the films "Pirates of the Caribbean"
- by outsoucing, the Queen could reap the benefit of trade, without putting at risk her army or government in nasty disputes

In the movie Jack Sparrow (Johnny Depp) once worked for the East India Trading Company and captained the Wicked Wench. When he refused to transport slaves, he was branded a pirate and his ship was ordered sunk by Lord Cutler Beckett, a company agent. - some say this is not far from what really happened in those days
 

One of the key consequences of globalization is to make your stuff cheaper than some other company across the ocean that is cutting into your customer base.

So companies are seeking every avenue possible to cut 

• design costs
• production costs
• shipping costs
• customer service costs
• financing costs

One of the most obvious considerations is that if the provider of this outsourced activity is indeed "doing it cheaper", how are they able to?

• are they using cheaper materials than what you would have used
• they're probably using cheaper labour
• is this just because they pay a low wage
• or do they also cut out any benefits which is a costly part of North American and European businesses
• are they cutting safety standards and processes
• do they get away with bypassing pollution and environmental considerations

If the competition is very intense, then the company must carefully attend to all the other influences such as

• Social-Cultural environment 
• language considerations
• management styles
• Technology
• Economics 
• currency exchange rate considerations
• labour wage rates
• Political
• rules and regulations for operating
• political influences
• Geography, weather

If the competition is NOT intense, then perhaps the only consideration might be some economic factors related to shaving a bit off the costs of production.

More and more companies are outsourcing part, or all, of the design process to companies that have personnel and technology that is too costly, or otherwise not accessible to some manufacturers, particularly small and medium sized enterprises.

Sometimes, it is also the case that these special design companies have invested in special technology, such as advanced CAD CAM software, that allows them to create a design more easily, and with less cost, than the client.

Additionally, there is the HR considerations. Some design companies have personnel on staff who are very experienced with particular aspects of design and this is a tremendous resource.

The technological environment also contributes to outsourcing in the sense that advances in communications technology mean that an outsourcing entity does not have to be in the same "high rent" location as the client.

Many outsourcing companies in Bangalore grew on the strength of India's development of fiber optic cable and resulting high speed internet connectivity which allowed companies to be located in Bangalore where labour costs are cheap, but the technology allows the client to be served instantly.

Language

Because English is spoken by many people in developing countries, it is attractive to set up Call Centres in those countries to serve situations where you need many people to respond to customer inquiries by phone.

For simple answers to simple questions, this might not be a problem, but for complicated things, like telling a person how to set up the defaults in his ISP account to create a new user mailbox, it may not be desirable to have the outsourcing company use people who have an accent much different than the customers.

Some people reading this segment may have heard that a big part of successful communication is being able to look in the face of the other person and see the body language that accompanies the words. When you are talking by phone, this is not possible - therefore it is even more important to be "crystal clear" in the words you chose to say and the way you say it.

English, being a language composed of several other languages, is vulnerable to thousands of slang expressions and phrases which are often only understood well by native speakers in the same country.

Management

Management
Labour

Future trends

"As businesses collaborate, and as top-down control of work and employees weakens, regional labor markets will normalize. Workers in one area of the globe will hear about practices in other parts of the world, raising awareness and intensifying their demands for equity. Labor forces in relatively disadvantaged economies will lobby to bring workforce programs into alignment with those of their global peers. Meanwhile, the values of workers and consumers in wealthier regions will promulgate globally, creating pressure across markets to adopt safe and competitive labor practices. In the long term — 10 years or more — the continuous pressure for equitable practices will normalize work/life programs and start to narrow the gap among regional labor rates. The gap in rates between the Western economies and Southeast Asia will remain big, but the gaps between emerging-market countries in Southeast Asia or other global regions will narrow."
http://www.gartner.com
from  Outsourcing Backlash: Globalization in the Knowledge Economy 
by  Dion Wiggins, Diane Morello   31 July 2003

Host
Country

Rules and regulations related to paying wages and hiring practices may influence how the outsourcer can operate.

The jurisdiction within which the outsourcer operates may try to extract a higher corporate tax rate if they think the outsourcer is being paid by a rich company from the U.S.

Sometimes, in order for the outsourcing company to operate cheaply, bribes must be paid to local government officials. This may be acceptable or unacceptable to the overseas client, depending on their corporate ethics and depending on how confidential these arrangements can be kept.

Such bribes could relate to regulations being broken about underage workers, or the number of hours a week workers work, or sanitary facilities etc.

Home
Country

In certain parts of the U.S., legislation is being discussed at the state level and the national level, which may limit the ability of particular companies to outsource "American jobs" to developing countries.

This has become a very sensitive issue and senior company executives are finding themselves in the position of having to defend laying off workers in the U.S. and hiring to be replaced by hiring people in India, or Mexico.

www.indiatimes.com says "If the US moves legislation on banning outsourcing, US companies are likely to suffer on account of impaired competitiveness. Overall, the US economy is likely to pay a heavy cost for keeping jobs at home and denying the benefits of outsourcing to its economy."

Other considerations such as the currency exchange rate also effect the decision to outsource to a company operating in another country.

Presently (2006) the national currency in China is still quite low, compared to the U.S. dollar, and the Chinese government, despite urgings by Washington, is reluctant to let the Chinese currency rise much higher.

However, despite the enthusiasm of the Chinese leaders to tightly control their economy, market forces may prove more powerful. The simple fact is that tens of thousands of young Chinese business people are growing very rich serving the manufacturing interests of European and North American companies. It is obvious what they will do with this money - buy high priced goods from japan, Europe and North America - which will in turn effect currency exchange rates and lifestyles: - same thing in Indian cities like Bangalore.

• time zones
• distance to travel for people and goods
• weather extremes
• seasonal differences

One of the reasons some California I.T. companies outsourced functions to companies in India was because the companies in India could be given tasks at the end of the day - work on them overnight while the Californians where sleeping, and email solutions back the next morning. This was particularly common in the late 1990's when many internet start-ups had massive amounts of compute programming to get done in a hurry.

One of the vulnerabilities companies face in outsourcing is the global phenomenon of floods, hurricanes and typhoons in recent years. These weather extremes are mostly effecting tropical regions, which is the same area of "low wages" that is targeted for outsourcing (nobody is hurrying to set up low-wage call centres in northern Sweden)

While the low wages of the tropical regions attract cost savings for outsourcing - at the same time the governments in these regions have proven themselves (in 2004 and 2005) to be ill equipped to deal with major disasters because of the lack of infrastructure such as good roads, a national communication network, and money for disaster recovery activities. 

The inability of some regions to handle weather extremes and natural disasters like earthquakes suggests a significant vulnerability that should be considered by companies that cannot afford any long period of "down time" while their call center gets rebuilt.

Mari-Lem De Guzman,  in COMPUTERWORLD (www.ITworldcanada.com) April 28, 2006

This story discussed how former workers at EDS stole money from account holders of the CSB Canada Savings Bond program. The story is very upsetting cause usually Canadians think the lowest risk for investing money is Savings Bonds with the government, and it turns out even that is risky because the government sub-contracted aspects of this work to some U.S. firm - and the employees there committed this fraud cause they thought they could get away with it.

In writing this story, Guzman interviewed Joe Greene, Ottawa-based vice-president of IT security research for IDC Canada.  www.idc.ca

Greene said "Corporate IT security is not just about protecting against external attacks like worms and viruses, but it's also about recognizing the potential of internal threats... you can have the best firewalls in the world, but if you let your guard down internally, you're still going to get burned"

Greene added "I think this is a clue to anybody that is going to be outsourcing that they need to make sure that the people they are outsourcing to are hiring only credible people".

Permission to quote ComputerWorld given by Greg Enright, Editor, ComputerWorld Canada, June 14th, 2006. Copies of emails kept in the permissions binder

Judy Artunian,  in COMPUTERWORLD (www.ITworldcanada.com) June 2006

1. Feeble governance
2. Overblown expectations
3. Blindly banishing projects
4. Dumbly disowning projects
5. Bad assumptions
6. Sloppy service levels
7. End-game myopia

Artunian is a freelance writer in Newport Beach, Calif. jartunian@sbcglobal.net

Permission to quote Artunian's piece on Seven Deadly sins of outsourcing given by Greg Enright, Editor, ComputerWorld Canada, June 14th, 2006. Copies of emails kept in the permissions binder

Think ahead

1. Feeble governance

"Before you sign with an outsourcer, nail down an organizational structure, establish methods for keeping tabs on the work being done, and spell out how you will manage the outsourced project on a day-to-day basis. "Your governance system should provide continual feedback to the organization regarding how the relationship is working, what value you are getting, how you are solving problems that have cropped up," says Michael F. Corbett, executive director of the International Association of Outsourcing Professionals in LaGrangeville, N.Y.

Think ahead

2. Overblown expectations

If you're shopping based on cost, you may have to give a little on service level.
"you get what you pay for" - even if it is in a country half-way 'round the world.
 

Make sure there is a "fit"

3. Blindly banishing projects

Don't send outsourcing to companies operating in a country where that type of industry sector is not well understood.

Artunian says "Use common sense and send projects offshore only to countries where your industry is mature. India and the Philippines, for example, while good choices for services like health insurance data entry, are poor choices for jobs that require decision-making related to health insurance... That's because in-depth knowledge of the field is still scarce in those areas. "Health insurance wasn't prevalent even 10 years ago in those locations," 

Make sure there is a "fit"

3. Blindly banishing projects

Also, don't outsource a function that requires clear communication with your customers, if the people providing that communication are not easily understood by the majority of people you do business with.

Artunian explains "..Dell Inc. outsourced its technical support to offshore providers, the company was inundated with complaints from U.S.-based customers who reported that they couldn't understand the service providers because of their accents. Dell had to move a chunk of its technical support services back home to Texas."
- this is not a "racial issue", it is a "speaking clearly the language of your customer" issue
- if a company has a large group of customers from one language group, it simply makes sense that these people can talk to someone who sounds like them, and can easily understand them

Don't Surrender
too much

4. Dumbly disowning projects

Don't give away so much of the company that your third-party outsourcer ends up knowing how to do things better than you.

Artunian says "You've outsourced so much of IT that your outsourcer knows almost as much about your customers, your products and your industry as you do....the IT department of another major automotive manufacturer recently realized that it outsourced too aggressively and is now trying to rehire nearly 150 former employees who went to work for the outsourcer."

Assumptions

5. Bad assumptions

"Technologies change so fast and the needs of clients change so fast, most parties should go into the contract expecting that after the first two years there is a pretty high likelihood that they'll have to renegotiate the contract," says Robert M. Finkel, an attorney at Milbank, Tweed, Hadley & McCloy LLP in New York.

Sloppy Service

6. Sloppy service levels

Artunian advises "Define service levels in the contract and stipulate penalties for missed service levels. 

"..it's not uncommon for vendors to want to wait until after the contract is signed before agreeing to specific service levels. That takes away your leverage and makes it less likely that you will reach a satisfactory agreement."

WTGR adds: most companies, when they are negotiating the level of service they need, seem to spend too much emphasis on negotiating a bottom rate price - which is their main focus, saving money - they should not be blind to the importance of making sure they get a level of service that will be equal to, or at least approach equality with the original service they had before outsourcing - otherwise they will lose customers.

Think ahead

7. End-game myopia

Artunian explains that you have to have a contingency in case 

• you decide to stop using that outsourcer as the contract nears its end
• the outsourcer has a failure that means your company cannot do some critical task