

Outsourcing relationships carry some inherent uncertainty but there are ways to minimise any potential damage to your business. Lawyer Kit Burden offers some advice.
This month’s launch of the 2009 Black Book of Outsourcing: The Year of Outsourcing Dangerously by Douglas Brown and Scott Wilson has sparked much talk about the risks involved in outsourcing to offshore locations.
The report ranks locations based on potential offshore threats, such as civil unrest, but the impact the rankings will actually have on firms’ outsourcing decisions is questionable.
In reality, there are very few instances of political or social upheaval having any impact on offshoring or outsourcing. One should also remember that major events are not isolated to offshore locations. The terrorist attacks on New York in September 2001 are an apt example of what can happen in an area perceived as a relatively ‘risk-free’ location.
While the threats identified by the report serve as a salutary reminder of what companies should consider before outsourcing their services, the sourcing decision itself has to be driven by fact, rather than pure perception.
With this is mind, the overarching truth is that the cost pressures for businesses, especially during the current economic downturn, are simply too acute to justify foregoing the cost advantages on offer. So long as the destinations in view pass muster at a basic level – as is the case with India -they will not be considered too risky and the outsourcing market will continue to develop. It would take a genuinely significant risk issue with a particular jurisdiction to overturn this.
To a certain extent, near-shore locations could end up looking more attractive in the reduction of perceived risk – but they will never offer the same level of cost advantages as offshore countries.
Of course, the smart approach is for companies to develop detailed due diligence and risk assessments on the ground. This will help reduce the potential risks of a particular location. Firms that solely rely on terms in outsourcing agreements and fail to adequately check that the actual situation of the location is reflected in the agreement, put themselves at an immediate disadvantage.
The contract between the two offshore business parties also needs to be specific and flexible to reduce the contractual threats, and it is imperative to maintain a high level of communication at all stages of the process.
So here are our five steps to reduce outsourcing risk: