IT OFF-SHORING PARTNERS

IT off-shoring partners

Table of Contents

Introduction4

The Nation-State: Data Security and Protection6

1.Why do intellectual property rights matter?6

2.Offshore outsourcing and international IPR8

3.International IPR laws9

Indian laws10

Russian laws11

Trade secrets11

The Health Insurance Portability and Accountability Act of 199613

The Financial Modernization Act of 199916

California Bill SB 138617

European Union Directive on Data Protection17

1.Hold-Up20

2.Contracts21

The Individual: Cultural Context for IPR Actions23

3.Cultural Proximity24

1.India and Russia: Specific examples of cultural influences25

7.Case studies28

1.Geometric Software Solutions Company29

2.Alibre30

3.University of California at San Francisco Medical Center30

8.Strategies for Firms33

1.Strategies for offshore outsourcers33

Information Classification34

Financial Controls35

Contractual Relationships38

Internal “Ethical Hacking” Group40

2.Strategies for offshore providers41

Conclusion42

IT Off shoring Partners

Introduction

Few economic issues inspire as much controversy and popular debate as offshore outsourcing of professional services (Seshasai & Gupta, 2004). For the first time in American history, white-collar American workers, such as information technology (IT) specialists, find their livelihoods threatened by Indian counterparts earning only ten percent of their income (Agrawal, Farrell, & Remes, 2003). Proponents argue offshore outsourcing helps businesses maintain their competitive advantage and creates value in the American economy beyond lost wages (McKinsey Global Institute, 2003). Opponents point out that not only do some workers lose their jobs, but offshore outsourcing suppresses wages for those who keep them (Brecher & Costello, 2003).

According to a 2003 Forrester Research study of 99 companies, 64% cited intellectual property concerns as the reason for their company deciding not to outsource offshore (McCarthy). Recognizing the growing importance intellectual property and the transfer of knowledge capital in trans-national relationships, this paper considers the issues significant to offshore outsourcing at three levels: the nation-state, the firm, and the individual.

Figure 1: Levels of Consideration for Offshore Outsourcing

At the level of the nation-state an examination of international intellectual property laws and national concerns about these laws provides a rich context for the operation of the firm and the individual. At the nation-state level the primary focus is on data security and protection. Specific consideration is given to India and Russia as offshore destinations. At the level of the firm, business strategy aspects specific to offshore outsourcing are compared and contrasted with those from on-shore outsourcing using common strategic frameworks. At the level of the individual, cultural influences on the interpretation, implicit assumptions, and enforcement of intellectual property regulations are addressed. Several case-studies related to offshore outsourcing and data security will also be presented. These case studies illustrate the inter-relation between the individual, firm, and nation-state levels of outsourcing discussed previously. Finally, strategies and best practices for firms concerned with managing offshore data security risks from both sides of the relationship are presented.

The Nation-State: Data Security and Protection

Offshore outsourcing is still in its infancy, and its ultimate impact remains to be seen. As it matures, though, new concerns are being raised by supporters and detractors alike. Among these concerns is offshore data security, especially of intellectual property and personal information. The Institute of Electrical and Electronics Engineers (2004) claims the threat to data security overseas poses a significant risk to American citizens and corporations. Several spectacular incidents of data theft in recent years have underscored the ...