Don’t Ignore the Global Sourcing Risks
Global sourcing boasts some substantial benefits, but there are also significant risks that cannot be ignored. When making the decision to incorporate global sourcing into your company’s business processes and development, the overall risk needs to be assessed to determine if outsourcing to another country is a wise move. Consider the following risks before moving any operations to a global sourcing partner.
Turnover of key personnel. There is a high demand for IT professionals among global sourcing providers. Consequently, the employee turnover rate is incredibly high. Vendors constantly try to attract talented engineers by luring them away from their current positions. This frequent turnover can impact your company because your projects may be delayed as new IT employees have to be trained and prepped on the current work.
Project specifications can be misunderstood. If a global sourcing provider is not given clear guidelines, there is a good chance that the system will not be developed correctly. Before sending a project to a vendor, a detailed project specification should be created that will define what needs to be completed and how it should be handled. Also, the global sourcing partner should have some type of quality assurance test that is used to ensure there are no errors in the programming.
Intellectual property theft. Intellectual property rights are among the most valuable assets a company can own. If intellectual property is stolen and technologies are shared, the company can suffer a major financial loss. When utilizing global sourcing, it is vital that certain measures be taken to protect the company’s intellectual property. The least amount of proprietary information should be provided to the global sourcing partner. The vendor should have policies in place to protect information that is given to them.
Loss of business knowledge. Generally, the developer of a process or system holds the business knowledge of that application. As you more projects are sent to a global sourcing provider, the outsourcing company begins to lose business knowledge. The outsourcing company becomes so tightly connected with the global sourcing partner that it makes it difficult to sever the relationship if need be. To avoid such a situation, it is recommended that the IT department retain a large portion of business knowledge by determining what projects can be outsourced without compromising the outsourcing company’s position.
Cultural and communication barriers. There is no question that the culture in the United States is vastly different than other countries. Outsourcing companies need to be aware that the global sourcing partners will have a work style that is unique from their own. This awareness will help avoid misinterpretation of the vendor’s actions and mannerisms.
Communication can also be difficult with a global sourcing partner. For the vendor’s employees, English is not their native language and there is the potential for miscommunication. Regular meetings should be conducted with project managers and summaries of the meetings should be distributed to all of the participants. The summaries will ensure that everyone knows what is to be expected.
Vendor failure to deliver. Even with the best efforts, there is a chance that the global sourcing provider will not get the project completed. Before outsourcing a project, this risk should be considered. The outsourcing company should formulate a back up plan. One alternative would be to outsource to multiple vendors to reduce the chance of failure. If the outsourcing company can’t take the risk, then the project should be kept in house.
Global sourcing carries some risks that can’t be ignored, but it also has major advantages. A&E Consulting can help you weigh the benefits of global sourcing. We will assist you in choosing the right global sourcing partner and establishing the business relationship. In addition, we will manage the first outsourced project to make the transition as smooth as possible.
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