Introduction

TheEffectsofPolitical,Economic,EcologicalandSocialUncertaintyontheOffshoreOutsourcingIndustry

As recent as earlier this year, American and UK businesses reached the decision to outsource offshore after considerablebusiness case analysis, required transition planning and soul-searching about the best way to handle the magnitudehuman issues involved. Offshore suppliers could be reliably measured by cost savings delivered, service levels anddowntime 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 haveirreversibly been changed. Ironically, or perhaps astutely, this survey of global location specialists was completed a fullmonth 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 andtechnology now dictate in-depth evaluation. Black Book Research was approached by dozens of corporate developmentexecutives after the 2008 annual client experience surveys of global outsourcing vendors to conduct a user study toprovide 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 promotionalbehalf of various country developers. From exotic to socially downtrodden areas, business dealmakers from around theglobe compete for a slice of the two billion dollar offshore pie. But investor and prospective client interest are no longermotivated by destination advertising alone. Once not that long ago, English language speaking skills and high numbers ofunemployed locals turned into the often misguided recommendations of where to consider offshoring. Recentendorsements of South Africa, Nigeria, Pakistan, Kenya and Jamaica proved unreliable and the next year’s lists changedagain. 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 theserisks by planning ahead with a sound outsourcing strategy as recent as just months ago. The complexities at every step ofthe new decision making process are mandating that the current and rising risks of each locations are included in theoffshore strategic planning.The realities of an unsafe world have fully overrun into outsourcing decisions. The responsibility of insuring data andprocesses remain safe can not be conveyed to the supplier on your behalf. As the savings gap between India and otherworld locations widens to less than ten percent, the value proposition is tempered by potential threats. The challengingcomponent of outsourcing governance has shifted to mitigating downstream risk by determining the best location choicefor their organizational processes. The reality is terrorist attacks, typhoons, crime and corruption will disrupt yourcorporate operations via offshore outsourcers.Client organizations need to realize that outsourcing does not decrease risk unless there is proper oversight including thebusiness-crippling hazards that are lurking among offshore delivery locations. Every company that outsources is fullyexposed to the downstream risk unless they can establish the threats and hazards in the regional location where theiroperations are hosted. Weighing the risks against the savings and improvements offered by outsourcing faces corporatedevelopment 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 tomake a qualified destination decision. Not only has the number of known offshore sites have grown significantly over theyears, but the severity and complexity of their vulnerabilities has skyrocketed. Client companies cannot afford to neglectvulnerability 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.

Methodology ResearchObjective

Black Book Research

, a division of Brown-Wilson Group, co-authors of “The Black Book of Outsourcing” (Wiley Publishers2005, 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 offshoringindustries.Black Book Research has produced a downstream risk metric for offshore outsourcing decision makers to identify andprioritize the directly exposed suppliers in functioning in offshore locations on your behalf. The suppliers with the greatestdownstream risk based on regional jeopardy present the greatest risk to your enterprise based on of the severity of thevulnerabilities 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. Noinfluence 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. 3010corporate 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 offshorelocations were selected for the survey based on locally employed industry employee counts. No American or UKcompanies 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 offshoredestination locations from which participants could select their individual choices from experience. These were based oncriteria that were determined important for organizations to consider when looking at a potential location for offshore ornearshore 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 andintellectual property security and privacy.

Quantitative & Qualitative Analysis

– Black Book employs a combination of quantitative and qualitative analysis indeveloping the weighted rankings in this report. Employing a transparency unmatched in the outsourcing researchbusiness, the Black Book weighing and ranking system is included in the report, and downloadable fromwww.theblackbookofoutsourcing.comto avoid both vendor, consultancy or location/destination preferences other thanthose of the actual user participants external to Black Book and Brown-Wilson Group operations. The system wasdeveloped and refined by the input of a consortium of fifty-two corporate development and location specialists globally inSeptember 2008. Additional comments and recommendations for survey criteria and key performance indicators arewelcome.

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 assessingthe 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 unseenramifications of offshoring’s downstream risks, and

to provide insight into the downstream risks of both established and emerging offshore destinations of variousoutsourcing services including technology, BPO and managed services.