Information Technology - USA
Globalization has had a major impact on the services market. It has generated a need for service delivery in remote locations and for global rather than regional platforms, while also creating extreme pressure to provide services from low-cost facilities. Increasingly, companies are looking offshore for the answers to these new demands.
The software, financial services and telecommunications sectors were among the first industries to explore the potential of outsourcing offshore. Early delivery models included a significant onshore presence, but thanks to advances in technology and other infrastructure - combined with the benefits in terms of cost, quality and productivity - offshoring is now an established business practice.
The key differences between onshore and offshore models are outlined in the table below.
Characteristic Onshore Offshore
|
Characteristic |
Onshore |
Offshore |
|
Asset transfer |
Outsourcing typically involves the transfer of people, hardware, software and third-party contracts |
Offshoring typically does not involve the transfer of assets |
|
Knowledge transfer |
Knowledge transfer is a mature process and, while not trivial, is not viewed as high risk |
Knowledge transfer is a key element of both service and price, and is especially important since people often do not transfer |
|
Term |
Arrangements are typically long term (five to seven years or more) |
Contracts are often short to medium term (three to five years or less) |
|
Statement of work |
Substantial efforts are made to develop a comprehensive statement of work |
Often, statements of work are developed as needed |
|
Termination |
Termination is not easy (legally or practically) and can be quite expensive |
Termination is often straightforward (both legally and practically) and without significant cost |
|
Pricing |
Often by business units (outputs) |
Often by full-time employee headcount (inputs) |
|
Jobs |
Domestic jobs are usually not lost |
Domestic jobs are almost always lost |
Significant legal issues will be involved in any offshoring project, but the following are worthy of particular note:
-
dispute resolution (this is even more important than usual, not least because international disputes are more expensive and complex);
-
data protection and privacy (some leading destinations for offshoring still have has no data protection framework in place);
-
intellectual property (offshore suppliers may be more accommodating on IP issues, but re-use may still occur);
-
tax;
-
immigration (in relation to citizen employees and green card holders sent abroad, and foreign nationals working in the United States on temporary work visas);
-
labour laws; and
-
export laws.
Some typical contractual issues should also be given special attention, including:
Finally, other offshoring-specific issues should be taken into consideration - for example:
-
language/cultural issues;
-
governance;
-
customer-facing communications;
-
time zone differences;
-
onshore/offshore mix (sufficient control should be retained within onshore operations while providing sufficient offshore scope to drive savings);
-
nature of offshore operation (if a captive offshore operation is being considered, it must be large enough to attract and keep skilled talent in the offshore country); and
-
knowledge transfer (eg, any commitment for customer personnel to visit the offshore supplier).
These issues, among others, are examined in greater depth in "Status Update on Offshoring: Where Are We Going?", the fifth in Pillsbury Winthrop Shaw Pittman's "Realities of Outsourcing" series of webinars.
International Law Office | 
