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Security worries hit offshore outsourcing
Companies look to cut the risk to data by looking at "near-shoring"

By Steve Ranger

Published: Tuesday 26 April 2005

Security and privacy concerns are becoming the biggest issue for companies considering outsourcing their IT projects to companies offshore.

Analyst house Gartner said that this year concerns about job losses will be overshadowed by these security issues.

Gartner research director Ian Marriott commented: "This will become the top issue for companies taking their work to other parts of the world."

In certain regions - such as China, Russia and the Baltics - concerns remain around issues such as government interception and access to data, and controls restricting the use of encryption, Gartner said. There are also concerns about intellectual property risks - in terms of enforcing patents laws, copyright and trade secrets.

By contrast, the risk of these problems is lower in other countries - such as Canada, Ireland and Australia - which also offer offshore IT services.

As a result some companies may look at building their own "captive" data centres in order to guarantee data security, or might consider outsourcing some services to countries with lower levels of risk.

"If they are looking to cut back on some of the risk they may look at more near-sourcing options," said Marriott, speaking at a Gartner outsourcing conference in London.

Gartner also predicted that, over the next three years, some Indian salaries for application-related services will increase by 35 per cent to 60 per cent.

Despite this, it envisaged even reduced cost savings being enough to drive continued demand. "Companies will continue to find sufficient benefit because there are other benefits being delivered as well as the cost savings," said Marriott.

According to the analyst house, worldwide spending on IT services delivered by nearshore and offshore companies will exceed $50bn within two years.