Globalization, Business Risk and Outsourcing

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This article aptly illustrates what is in my opinion what the largest single business risk facing any company that is considering outsourcing their customer facing business functions such as customer service. This risk is that of identity theft. The second largest potential risk associated with outsourcing is the theft of intellectual property or other competitive information, data or other company secretes and the third (but by no means final) major outsourcing factor is loss of control. Now some would argue that customer data is part of intellectual property/company data, however for this purpose of this article and also in general I don’t this is applicable. The reason being that various companies tend to have the same customer information. For example, my phone service provider has the same customer data that my internet provider has that my local utility company has an so on and so forth. And since they have the same data, this is not necessarily intellectual property. Granted, there is the business of selling customer data/lists such as email lists to legitimate business but that is an argument for another day.

Back to the issue at hand… Now why do I consider customer data theft a bigger risk than company intellectual property? When customers give any company their business, they implicitly trust the company to safeguard and protect their private information. If this company then [in most cases] unwittingly looses and this same information is then used to open new credit card accounts, purchase all sorts of products and siphon money out of bank accounts. In many cases these actions lead the victim’s credit being ruined and in most cases, years and years spend repairing (and reversing) the damage done. This I think has a bigger impact than if the company’s IP was stolen and the company was to suffer a loss as a result. I think in most cases, it is much easier for the company to recover from such an event.

The fact that many corporations in the west attempt to cut their operating costs by taking advantage of the low wage in the countries they outsource their processes too is precisely the same factor that also makes these same companies vulnerable to this exact issue. Firstly, the employees now doing the work are likely to be on a much lower pay scale than their western counterparts. If these workers are offered substantial payoffs in dollars that may be worth a year’s or more salary, simply for access to certain files or information, they may be tempted to do just that. In this day and age, with globalization and ease of travel, its not hard to imagine that those willing to buy the information may not even be in the country where to worker is located.

It would seem that companies have to find ways to better control or at least minimize these risks if they are to remain competitive

Solutions may include some or all of the following

  1. Rather than outsourcing, you can still move part of your facilities to the foreign country. By doing so, you still retain control over the company’s operations, you are able then to hire workers as company employees which will instill greater sense of loyalty, and finally then pay these workers a good wage and benefits. Although the wages will be lower than the US/European wage rates, they should still be substantially hire than the local wages. Such a worker is likely to remain loyal to the company
  2. If the first option is simply out of the question, then the next best solution is to work with an outsourcing company that pays its workers (or at least the ones assigned to your company’s work) a decent wage and benefits. And in the same way that some manufacturing companies will carry out inspections on the foreign facilities, companies should carry out inspections to ensure that the workers are treated well and enjoy their work.

These are only some of the many issues that companies, that expect to remain competitive, have to be prepared to deal with as the outsourcing trend continues to grow.

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