The Effects of Political, Economic, Ecological and Social
Uncertainty on the Offshore Outsourcing Industry
As recent as earlier this year, American and UK businesses reached the decision to outsource offshore after considerable
business case analysis, required transition planning and soul-searching about the best way to handle the magnitude
human issues involved. Offshore suppliers could be reliably measured by cost savings delivered, service levels and
downtime and weighted for suitability with your organization based on customer reference checks.
Globalization aggressively chased the cheapest offshore delivery locations that outsourcers could find.
After the terrorist events of 2008 in one of the offshore industries main destinations, the risk/reward calculations have
irreversibly been changed. Ironically, or perhaps astutely, this survey of global location specialists was completed a full
month before the attacks. India’s precarious position and placement in the world is no longer only prophesy.
The world events of 2008 have irreversibly changed risk/reward calculations. Destinations of offshore processes and
technology now dictate in-depth evaluation. Black Book Research was approached by dozens of corporate development
executives after the 2008 annual client experience surveys of global outsourcing vendors to conduct a user study to
provide insight and peer references on their experience with offshore locations.
In response to the new year lists of the latest or emerging outsourcing locations which are published for the promotional
behalf of various country developers. From exotic to socially downtrodden areas, business dealmakers from around the
globe compete for a slice of the two billion dollar offshore pie. But investor and prospective client interest are no longer
motivated by destination advertising alone. Once not that long ago, English language speaking skills and high numbers of
unemployed locals turned into the often misguided recommendations of where to consider offshoring. Recent
endorsements of South Africa, Nigeria, Pakistan, Kenya and Jamaica proved unreliable and the next year’s lists changed
again. Such criteria do not insure data safety or business continuity offshore and offer no real guidance.
The controls are off environmental, political, economic and social risks and outsourcing customers can not mitigate these
risks by planning ahead with a sound outsourcing strategy as recent as just months ago. The complexities at every step of
the new decision making process are mandating that the current and rising risks of each locations are included in the
offshore strategic planning.
The realities of an unsafe world have fully overrun into outsourcing decisions. The responsibility of insuring data and
processes remain safe can not be conveyed to the supplier on your behalf. As the savings gap between India and other
world locations widens to less than ten percent, the value proposition is tempered by potential threats. The challenging
component of outsourcing governance has shifted to mitigating downstream risk by determining the best location choice
for their organizational processes. The reality is terrorist attacks, typhoons, crime and corruption will disrupt your
corporate operations via offshore outsourcers.
Client organizations need to realize that outsourcing does not decrease risk unless there is proper oversight including the
business-crippling hazards that are lurking among offshore delivery locations. Every company that outsources is fully
exposed to the downstream risk unless they can establish the threats and hazards in the regional location where their
operations are hosted. Weighing the risks against the savings and improvements offered by outsourcing faces corporate
development and location specialists daunted by the task of determining the best choice for their organization.
The necessity for an effective vulnerability management matrix has grown ever greater over the last few months.
Less inclusive offshore location rankings based on cheaper but skilled labor pools and tax incentives are not sufficient to
make a qualified destination decision. Not only has the number of known offshore sites have grown significantly over the
years, but the severity and complexity of their vulnerabilities has skyrocketed. Client companies cannot afford to neglect
vulnerability management and still expect to successfully maintain system availability and protect sensitive data.
Offshore outsourcing vulnerabilities and weaknesses need to be identified and addressed before they cause a security,
customer service, quality or access issue.
Black Book Research, a division of Brown-Wilson Group, co-authors of “The Black Book of Outsourcing” (Wiley Publishers
2005, 2008). Black Book Research conducts studies and surveys regularly to inform buyers, prospects, investors, users,
analysts, owners, governance officials, corporate executives and vendors of the state of the outsourcing and offshoring
Black Book Research has produced a downstream risk metric for offshore outsourcing decision makers to identify and
prioritize the directly exposed suppliers in functioning in offshore locations on your behalf. The suppliers with the greatest
downstream risk based on regional jeopardy present the greatest risk to your enterprise based on of the severity of the
vulnerabilities present and the access allowed from the supplier to your sensitive data and processes.
Black Book Research specifically employs the externally audited responses of confirmed outsourcing users globally. No
influence or direction for preference is exerted on participants by any third party.
Primary Research – Black Book utilized online surveys and interviews with Managed Services clients only. 3010
corporate development leaders, including location and destination specialist executives were surveyed from October 20
– November 12, 2008. 448 ballots from outsourcing users were confirmed and included in this analysis. 125 offshore
locations were selected for the survey based on locally employed industry employee counts. No American or UK
companies were included in this survey, as the analysis is focused on offshore outsourcing locations only.
Secondary Research – The only secondary research employed by Black Book was to establish the original offshore
destination locations from which participants could select their individual choices from experience. These were based on
criteria that were determined important for organizations to consider when looking at a potential location for offshore or
nearshore IT or business process services. They were: language, government support, skilled labor pool, infrastructure,
educational system, costs, political and economic environment, cultural compatibility, globalization trends, and data and
intellectual property security and privacy.
Quantitative & Qualitative Analysis – Black Book employs a combination of quantitative and qualitative analysis in
developing the weighted rankings in this report. Employing a transparency unmatched in the outsourcing research
business, the Black Book weighing and ranking system is included in the report, and downloadable from
www.theblackbookofoutsourcing.com to avoid both vendor, consultancy or location/destination preferences other than
those of the actual user participants external to Black Book and Brown-Wilson Group operations. The system was
developed and refined by the input of a consortium of fifty-two corporate development and location specialists globally in
September 2008. Additional comments and recommendations for survey criteria and key performance indicators are
THREAT CRITERIA SCORING: 0 = Strongly Disagree 5 = Neutral 10 = Strongly Agree
The aim of the study was to rank each metropolitan hub of outsourcing, as similar concerns are shared when assessing
the safety and security of outsourced operations. This research is aimed with the following scope of work:
- to analyze the downstream risks of offshoring outsourcing in 2009,
- supplier side risk assessments
- to develop a multi-criteria decision model for outsourcing buyer decision makers concerning the often unseen
ramifications of offshoring’s downstream risks, and
- to provide insight into the downstream risks of both established and emerging offshore destinations of various
outsourcing services including technology, BPO and managed services.
15 Key Steps to Mitigating
Current Global Business Threats
1. Be Aware of where your processes and data are outsourced. Do not wait until a crisis to learn that your organizational security or service
2. Perform a thorough analysis of destination risks before agreeing to a vendor’s proposal to shift operations locations to save
3. Prepare and update crisis contingency plans to addressing each offshore supplier agreement. Establish crisis contingency
plans in each of the ten areas of major and current vulnerability and update to keep current for constantly changing global situations. Be able to nimbly
shift to alternative sources for essential operations. There is no substitute for specific and delegated contingency planning prior to a crisis.
4. Keep ready a planned course of action for bringing operations back in house. This includes keeping skilled staff on board or
accessible who can execute the plan at a moment’s notice.
5. Dry run your alternate courses of action for transitioning operations to an onshore outsourcer. Contractually demand that your
data and service back-up is kept on the same shore and an alternative data center can be used when you choose. If your vendor can not accommodate
or dissuades your concerns with platitudes, change before a crisis occurs.
6. Obtain and understand your suppliers crisis, disaster recovery, data transfer, back up, chain of command structures,
communications and related planning documents on your behalf. Who on your team appreciates when and how these plans will take
7. Identify industry consultants who can lead your business through an offshore crisis. Maintain an “A” team of experts in crisis
communications, project management, programming, system administrators, client relations, investor relations, and process implementation. Likely, if it’s
a catastrophic regional situation, the best and the brightest of global outsourcing consultants will already by engaged by those who planned ahead.
Consultants may also work on a retainer basis going forward to protect your interests when things go wrong in another hemisphere.
8. Outsourcing governance leadership is an essential team investment more than ever. Offshore outsourcing, in particular, is a risky
proposition, but one that offers potential benefits to the organization in terms of cost, service levels, process transformation, and access to talent.
Managing an outsourcing deal well is not just a matter of negotiating effectively or implementing an SLA oversight model. Effective outsourcing
management requires a life cycle approach that includes a robust crisis strategy. Whether you are contemplating an outsourcing arrangement or are well
into one now, it’s never too soon to start looking for the vulnerabilities of where your supplier operates in the world.
9. Monitor the operational delivery location requirements. Often, suppliers come to their clients and propose additional cost savings by
moving to the supplier’s newest or cheapest delivery location. Do not leave the decision to the vendor and protect your position in your contracts.
10. Have proper written policies that strictly prohibit any conduct that is considered as a statutory violation of US Foreign
Corrupt Practices Act. Proper implementation of the policy requires ensuring that you continuously monitor the activities of offshore vendor and take
appropriate actions in case of violations of the policies. Anti-bribery provisions prohibit Issuers, domestic concerns, and any person from making use of
interstate commerce corruptly, in furtherance of an offer or payment of anything of value to a foreign official, foreign political party, or candidate for
political office, for the purpose of influencing any act of that foreign official in violation of the duty of that official, or to secure any improper advantage in
order to obtain or retain business.
11. Do not rely on the short list of references the vendor will supply in the due diligence phase. References and comparative Black
Book Client Experience Reports as fewer people are making offshore site visits because of costs and personal safety reasons. Black Book ‘s role is to
collect client experience to reduce the expense of site visits. This risk can be mitigated simply by verifying their claims and talking with their existing
customers and other industry references. If budgets permit, visit the offshore locations where your data will be sourced.
12. Your business won’t be the only client affected in a major crisis and vendors will prioritize repairing the largest customers
first. Hits to major outsourcing hubs will disrupt economies, staffing and operations. If you do not have requirements and action steps in place to protect
yourself, you may be permanently damaged. If vendors are rendered disabled or completely shut down, how will you react? How long will a midsized
business wait for supplier attention behind larger clients?
13. Seek best practices for managing and safeguarding business data in a crisis. Include disaster recovery, periodic security audits,
lawful treatment of data and interruption of business.
14. Mitigate risks of offshore outsourcing by assessing their security capabilities before a crisis. Do your suppliers follow any
industry security consortium or security certifications? Demand a security check up and regularly.
15. Remain in Charge of your company’s Global Delivery Model. This is an excellent way to mitigate the risks of offshore outsourcing. The
model can be based on having the project conducted offshore, but with vendor resources located onshore. The local contacts help you communicate
with the vendor and increase collaboration between the offshore and onshore teams that are working on the project.
The New Year’s Top Trends for
Shifting Outsourcing delivery preference to nearshore and sameshore
Having services centers nearshore and sameshore will be a major client priority in 2009. Suppliers, particularly Indian mega-suppliers,
will find the lack of client nearshore and sameshore options as absolute deal breakers. The uncertainty of regional threats in offshore
locations will continue to escalate. It will be critical for offshore outsourcers selling heavily into the United States, Japan and Western
Europe, to invest in more resources than just in-country sales teams. Clients will demand their data, process resources and account
executives be local. Inaction will result in clients seeking and reverting to US providers.
Outsourcing Governance executive positions and software tools continue to sharpen The savviest
Fortune 500 offshoring customers will use a calculated mix to mitigate offshore risks including: low-cost offshore locations, and near-
shore locations to meet their requirement of greater controls and ROI. Managing offshore strategies and global operations encompass
leading with the criticalities of cultural dissimilarities, high risk security concerns, inconsistencies in currency and labor costs, plus similar
time zone and language skills. The perils to offshore operations of which business clients can not control will be the focus of a new set of
vulnerability assessments and tools.
Central & Eastern Europe, Latin America and China will reap from India’s temporary and permanent risks
Indian outsourcers have begun the rush to Central and Eastern Europe as well as Latin America to establish data and service centers
that diminish the downstream risk inherent in ignoring US and UK concerns of continuing offshore operations exclusively in India.
Strategic choices are being made
Focus on the vulnerability management of your offshore suppliers
According to users and global corporate development executives, the top locations for operating with lowest downstream risk in 2009
are Central and Eastern Europe, as well as Latin America. Singapore (Singapore), Dublin (Ireland), and Santiago (Chile) are now
viewed as significantly less dangerous offshore locations than all the major hubs of India.
New Hot Spots to avoid Most of
Southeast Asia (with the exception of #1 Singapore, Singapore) scored under the midpoint of offshore outsourcing safety and
vulnerability measurement by current clients. The entire continent of Africa still poses serious dangers to business continuity and is
recommended to be avoided including South Africa. The only exception is #10 Cairo (Egypt) in far north Africa which has undertaken
major infrastructure projects to protect systems and minimize offshore risk to clients.
Particularly high crime ridden areas of Latin and South America could threaten the expansion capabilities of growing locations unless
local law enforcement is enhanced.
Polluting outsourcers must innovate green alternatives for their clients, but client will pay
Budget cuts through the global financial crisis have pushed environmental enforcement back and forth from vendors to clients back to
vendors. American and UK vendors have lead the discovery and implementation of green initiatives. Many offshore vendors offer
opportunities to reduce their technology’s carbon footprint but at a build-out cost to the client only. Lack of compromise threatens the
Your outsourcer’s reflection on your business’ clients takes center stage
The more intangible and esoteric aspects of outsourcing vendor performance will bring judgment back on your business this year.
Allowing a vendor to operate as your business proxy should be developed with stringent contract considerations. Outsourcing
management models will demand greater flexibility in service delivery models to address your organizational needs. Your extended
clients will look to see who you use for outsourcing, where you offshore, and the performance of your choices. If your outsourcer is in
poor standing globally, it will begin impacting your brand.
All Outsourcing suppliers are looking for ways to lock in long term business
The need to reduce costs will drive some new outsourcing but not enough to keep up with growth levels of past years. Expanded
globalization efforts will hit the wall through 2009 and the best news for buyers is that suppliers will offer better pricing, better service
levels, process transformation, technology modernizations, and contractually guarantee all the positive aspects of outsourcing to lock
you into long term deals.
Clients demand promised savings payments upfront from outsourcers.
Outsourcing clients, particularly in the financial services, insurance and telecom sectors, are demanding hefty upfront savings payment
from service providers to tide over the global slowdown and credit squeeze. This will greatly increase the cost of acquiring new
businesses for offshore outsourcing vendors but upfront payments from cash-rich Indian suppliers will be a significant differentiator for
a better business case.
Escalating US Unemployment brings work back home. Growing U.S. unemployment will hurt the offshore companies as domestic
labor becomes cheaper. Unemployment drives labor to work at wages much below where they previously worked. With US
unemployment the lowest in 34 years, the opportunity for national job creation is prime.
Assessing Offshore Locations
Supportive Forces for Capitalism Local Strife & Obstructive Forces to Capitalism
1 - Dublin, Ireland 1 - Johannesburg, South Africa
2 - Singapore, Singapore 2 – Bogota, Colombia
3 - Santiago, Chile 3 – Bangkok, Thailand
Anti-Corruption Enforcement Corruption & Organized Crime
1 - Dublin, Ireland 1 – Bogota, Colombia
2 – Bangalore, India 2 – Juarez, Mexico
3 – Santiago, Chile 3 – Johannesburg, South Africa
Peaceful Geopolitical Conditions Heightening Trans-national & Geopolitical Issues
1 – Toronto/Montreal, Canada 1 - Delhi/Noida/Gurgaon
2 – Dublin, Ireland 2 – Jerusalem, Israel
3 – Singapore, Singapore 3 – Colombo, Sri Lanka
Stable Economy & Currency Unstable Currency
1 – Singapore, Singapore 1 – Bangkok, Thailand
2 – Dublin, Ireland 2 – Bogota, Colombia
3 – Krakow/Warsaw, Poland 3 – Johannesburg, South Africa
Law Enforcement Prioritized Personal Crime Rate & Police to Citizen Ratio
1 – Singapore, Singapore 1 – Bangkok, Thailand
2 – Dublin, Ireland 2 – Johannesburg, South Africa
3 – Beijing, China 3 – Rio de Janeiro, Brazil
Secure & Protected Networks, Infrastructure, Technology Unsecured & Unprotected Networks, Infrastructure,
& Telephone Technology & Telephone
1 – Toronto/Montreal, Canada 1 – Bogota, Colombia
2 – Singapore, Singapore 2 – Bangkok, Thailand
3 – Dublin, Ireland 3 – Kingston, Jamaica
Environmental Protections Highly Enforced Uncontrolled Environmental Waste & Pollution
1 – Reykjavík, Iceland 1 – Bangalore, India
2 – Dublin, Ireland 2 – Chandigarh, India
3 – Krakow/Warsaw, Poland 3 – Kuala Lumpur, Malaysia
Low Terrorist or Rebel Target Threats High Terrorist or Rebel Target Threats
1 – Prague/Brno, Czech Republic 1 – Mumbai, India
2 – Budapest, Romania 2 – Delhi/Noida/Gurgaon, India
3 – Krakow/Warsaw, Poland 3 – Jerusalem, Israel
Legal System maturity for outsourcing Legal System Immaturity
1 – Toronto/Montreal, Canada 1 – Bangkok, Thailand
2 – Dublin, Canada 2 – Bogota, Colombia
3 – Singapore, Singapore 3 – Kingston, Jamaica
Weather & Climate Threats/Hazards
Weather & Climate Stability 1 – Kingston, Jamaica
1 – Budapest, Hungary 2 – Manila/Cebu/ Makati, Philippines
2 – Dublin, Ireland 3 – Bangkok, Thailand
3 – Singapore, Singapore
The Riskiest 25
Local Strife Corruption Transnational Unstable Personal Unsecured & Uncontrolled Terrorist Legal Weather MEAN
R & & & Geopolitical Currency Crime Unprotected Environmental or Rebel System &
A Obstructive Organized Issues Rate & Networks, Waste & Target Immaturity Climate
N Metropolitan Regions Forces to Crime Police to Infrastructure, Pollution Threats Hazards
K Capitalism Citizen Technology &
26 Kolkata India 2.00 1.25 6.55 5.55 3.88 7.14 8.22 8.08 4.19 3.72 5.06
27 Hyderabad India 1.45 1.22 7.00 4.90 3.07 7.75 8.33 9.11 4.25 3.97 5.11
28 Bangalore India 0.71 0.88 7.21 5.05 7.15 6.22 9.73 9.40 4.09 2.98 5.34
29 Hanoi Vietnam 3.74 7.18 2.82 3.65 8.78 8.05 7.76 3.38 7.35 2.12 5.48
30 Chennai India 1.11 2.20 7.87 5.40 5.44 7.31 9.40 9.44 3.99 3.11 5.53
31 Pune India 1.66 2.89 7.20 4.84 5.50 8.33 8.79 8.06 4.80 3.29 5.54
32 Accra Ghana 5.16 7.35 4.29 2.66 7.28 6.77 7.11 5.66 7.93 1.51 5.57
33 Quezon City Philippines 2.39 6.89 2.02 5.11 7.96 3.54 9.19 7.33 7.41 6.88 5.87
34 Ho Chi Minh City Vietnam 6.78 6.42 3.11 3.40 8.08 8.82 7.12 7.24 6.90 2.03 5.99
35 Colombo Sri Lanka 4.17 4.01 8.49 6.22 3.29 4.41 6.22 9.20 6.92 7.14 6.01
36 Chandigarh India 3.72 2.20 8.11 4.90 5.02 8.91 9.68 8.92 4.73 4.04 6.02
37 Brasilia Brazil 5.43 9.03 2.22 3.14 8.55 8.03 7.24 6.27 7.02 3.48 6.04
38 Juarez Mexico 4.90 9.68 7.28 2.11 9.48 2.16 9.44 4.76 8.18 2.52 6.05
39 Dalian China 5.11 6.20 7.47 7.07 7.28 8.02 7.90 4.05 7.89 3.05 6.40
40 Curitba Brazil 6.40 8.55 4.66 3.14 6.47 8.21 7.82 4.99 9.01 4.81 6.41
41 Jerusalem Israel 7.67 2.91 8.55 4.24 7.95 7.42 6.07 9.52 6.28 3.65 6.43
42 Mumbai India 4.89 3.33 8.29 5.38 4.15 5.52 9.58 9.77 6.00 8.01 6.49
43 Rio de Janeiro Brazil 4.03 9.27 3.34 3.21 9.78 7.11 8.90 7.27 8.22 4.02 6.52
44 Manila/Cebu/Makati Philippines 2.05 7.89 3.96 4.27 8.82 6.96 8.44 8.65 8.13 8.90 6.81
45 Delhi/Noida/Gurgaon India 4.03 4.88 9.04 5.13 8.70 8.25 9.45 9.63 4.69 3.99 6.78
46 Kingston Jamaica 3.50 8.35 0.32 3.33 9.46 9.39 9.00 8.07 9.22 9.75 7.04
47 Kuala Lumpur Malaysia 5.60 7.39 1.99 6.74 9.72 9.33 9.59 9.03 8.85 7.41 7.57
48 Johannesburg So. Africa 9.25 9.59 4.64 7.83 9.79 9.19 9.38 8.28 9.01 5.03 8.20
49 Bangkok Thailand 8.83 9.03 1.84 8.89 9.90 9.73 9.29 7.20 9.71 8.52 8.29
50 Bogota Colombia 9.11 9.81 3.22 8.23 9.72 9.83 9.03 8.92 9.59 6.54 8.40
Black Book Research, a division of Brown-Wilson Group, is to provide objective analysis and non-
biased advisement to outsourcing buyers and investors globally.
Brown-Wilson Group, through The Black Book of Outsourcing, maintains the business perspective
that because the outsourcing marketplace is so complex and dynamic, the outsourcing industry is
looking for the most valid and premium knowledge. BWG’s answer to that need has been to
provide continuous supplier data and research that helps buyer executives throughout their process-
improvement lifecycle, investors in their due diligence processes, and vendors with a measurement
standard set to improve customer services. This report has been developed for the global
outsourcing industry with the single purpose to ensure the growth and success of initiatives by
clients, users, prospective clients, analysts, venture capitalists and investors, media outlets and press,
competitive vendors, subcontractors, service suppliers, supporters and advisors in the evolving
BWG's Investment Philosophy: As a privately held company, Brown-Wilson Group believes that
our customers are our primary constituency. A large percentage of every revenue dollar is reinvested
back into our independent survey instruments and programs, including additional auditors and
analysts, more industry coverage, and extensive unbiased research. Our steady growth over the past
6 years reflects our commitment to investing in our customers and the satisfaction process in the
global outsourcing and offshoring industry exclusively
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