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On-Shore Verse Off-Shore Outsourcing?

Written by: Steven J. Weil, PhD, EA

Article Overview: There are many benefits to outsourcing. What you outsource and where you outsource are two very important decisions in protecting your businesses intellectual property and reputation.

On-Shore Verse Off-Shore Outsourcing?

On-Shore Verse Off-Shore Outsourcing?

There are many benefits to outsourcing. What you outsource and where you outsource are two very important decisions in protecting your businesses intellectual property and reputation.

Outsourcing is commonly thought of as replacing employees with an outside company that provides the same services that were provided by the employees at a lower cost. It also converts the variable costs of employees, who must be paid for hours worked into a fixed expense that directly corresponds to the tasks preformed. The outsource provider does this through efficiencies in operations and / or through the use of off-shore (foreign) labor. Many outsource companies operate off-shore in countries with lower wages and lower labor standards which allows them offer services at lower costs than a U.S. based work force. We refer to these companies as off-shore outsourcing. There are also firms that provide outsourced services using U.S. based employees. These on-shore outsource companies provide specialized services and reduced costs through efficient operations, specialization and by using the latest technology. They also allow business that may not have a full time need for experts to get access the experts when they need them and for a cost they can afford.

Off-shore outsourcing works well for manufacturing processes such as assembly and for clerical services and processes like call centers. Workers can be provided with instructions or scripts and do not require a high degree of supervision from the outsourcer. The quality of the end product can be easily evaluated. Maybe most important of all is that the outsourcer does not have to share any confidential information or trade secrets. It's important to remember that agreements with many of these off-shore outsourcer's are not governed by U.S. law and since their business' and assets are off-shore your only recourse may be through a foreign court. This coupled with the fact that many countries do not place the same importance on intellectual property and privacy that U.S. courts do, may leave your company unprotected should the outsourcer or someone who works for the outsourcer release confidential information or use it for illegal purposes such as identity or credit card theft.   

On-Shore outsourcing predates off-shore outsourcing. In the early days of computers many companies large and small outsourced their data processing. Payroll services have also been outsourced by large employers for many years. Keeping legal counsel on retainer is also a form of on-shore outsourcing. Today many companies also outsource their bookkeeping and accounting functions. All of these functions   are best handled by an on-shore outsourcing firm, because they allow the outsource company access to important confidential data. Much of this data is protected under U.S. law and losing control of confidential data belonging to the company or its customers can be very costly. On-shore outsource firms are bound by U.S. law, and so are their employees. This means that keeping your private information private is just as important to them as it is to you. It also means if they don't take the care to make sure that all your data is secure, you have recourse under U.S. law and in U.S. courts.

Because many times off-shore outsources are represented by on-shore firms it's important to find out just where the work will actually be done and how much control the outsource provider has over those doing the work. For example, we know of some accounting firms that have their accounting and tax data processed in India. Under new rules, the AICPA now requires accounting firms using off-shore processors to disclose this information. The IRS also requires tax preparers using off-shore processors to disclose this information before sending client work outside the U.S.

Other important questions for an out-source provider are "Do you use employees or independent contractors?" "Are your employees located in your offices and under the direct control of their supervisors?" We have found that some out-source firms use independent contractors working from remote locations. This makes it much harder if not impossible for them to control access to data and provide adequate supervision.

In conclusion out-sourcing can and does save money. It can also increase the level and quality of service, but it's important to get all the facts and choose an outsourcing firm that offers the safe guards necessary for the job that is being outsourced. Today it is more important than ever to safe guard your companies and your customer's confidential information.

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Article Tags: assets, call centers, clerical services, confidential information, efficiencies, full time, important decisions, latest technology, manufacturing processes, outsource provider, outsourced services, outsourcer, recourse, reputation, specialization, specialized services, time need, trade secrets, variable costs, wages



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Re: Should a start-up outsource early? - Hello and welcome to the forum! I agree with Ideasuniversity. Outsourcing is a good way to leverage your time, provided you keep within your budget! Best wishes, David H
Re: Using PR in the Franchise Business - Outsourcing in any business can be a good thing, provided you can afford it and do your due diligence on the company that you outsource to. It is very easy to be taken for a ride if you don't know what you are doing. MichelleJ
Outsourcing - I'm with Louis on this one. By outsourcing you can bring in experts to handle the things you are not good at with a much lower price tag than if you brought someone on full time. Outsourcing is also a way to transition from being a solo-preneur to having staff - you don't have to bring on a salaried worker right away.
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