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4 Challenges American Businesses Face when Outsourcing IT Overseas

June 22 2017 - Outsourcing overseas has been held up as a gold standard for saving money by relying on world class talent elsewhere in the world. It typically provides 24x7 coverage in conjunction with US based software support or back office staff. It often allows businesses to work with tech staff in the markets they want to cultivate, as Microsoft's Indian and Chinese hubs demonstrate. However, outsourcing IT overseas brings its own challenges, many of which can lead to serious problems for the company or its customers. Here are four challenges businesses face when outsourcing IT overseas.

The Talent Often Isn't as Good as Promised

All too often, the price you pay for cheap talent is poor quality. India often boasts of having more engineers than the United States. However, this count is inflated by more lax accreditation. For example, a 2016 Aspiring Minds study found that only 5% of Indian engineers were qualified for software development jobs. This was based on assessments that found 4.77% could write the correct logic for a computer program. For broader engineering tasks, only 7% were suitable.

The issue isn't just limited to engineers and IT degree holders. Crowdsourcing platforms readily rely on international talent for tasks from tagging photos, to providing text for chatbot scripts, to creating synopsis for web content. And they are implementing tests on sites like Amazon Mturk to weed out the majority of candidates who say they have the skills in order to find the few who do. An alternative is using sites like that test candidates before offering them for outsourced projects or rate contractors so that you can vet them for quality.

Failure to Communicate

Communication or lack thereof kills many projects, yet it is all the more important when you outsource IT projects overseas. Limited English skills without review by someone fluent in both the language of the requestor and the assignee regularly results in output or service that isn't up to the outsourcer's needs. Outsourcing tech support to foreign call centers often results in language barriers that drive your customers up the wall. Even if the person understands conversational English, they may not understand technical discussions well enough to translate the customer's description into the problem statement listed in their script.

A variation of this problem arises when those working on the project don't have a clear channel for relaying questions to your team, so they make mistakes because they can't get the right information.

Creeping Scope

Many projects based in the West fail because of creeping project scope. The project starts with a software migration, and managers or key stakeholders add in everything else they wanted changed in the old system to the project scope. If additional resources are not assigned, the project ends up being rushed with errors or delayed. Adding headcount at remote locations makes the odds of errors and failure higher because they may not understand what they are doing or its relation to the overall scope. This is how you get functionality added to a website that seems totally at odds with the rest of the design or that fails to work with the rest of the enterprise system. If you expand the scope of the project and add more features without telling the offshore IT department, their segment of the project may not work with your revised product.

When working with outsourced IT, you can see other types of creeping scope. If you outsourced first level technical support that can be done per a script, they may try to take over second level technical support in order to complete more calls and be paid more even though this isn't part of their expertise. Service suffers as they try to do more to either make the outsourcer happy or earn more money.

Legal and Contractual Issues

There are already many jokes about intellectual property being non-existent in China, so that if they develop the product for you, they'll sell it in their own country under their own imprint to compete with you. Preventing this problem requires designing the project so that the IT outsourcer has limited access to only the information they need to do their job and cannot use the code or software you pay them to create to do anything else.

There are other legal issues that come up with foreign outsourcing. A foreign IT outsourcing company may not be legally required to obey an American non-disclosure agreement, and enforcing it if they violate it may be impossible. You can try to structure the work to protect people's privacy, such as the Indian accountants reviewing and handling American tax returns working in offices where they are not allowed paper or writing instruments where they could write down someone's Social Security Number or personal information. Medical records processors in India often have the same policy to limit the ability to capture someone's private information and use it adversely.

Another problem is simply due to differences in international contract law. Companies that built factories in France found that they owed one to two years of wages to those they were laying off as a condition of closure. In other nations, the vague and high level promises made during contract negotiations fail to translate into legally enforceable or valid contractual obligations. Low cost contracts become a nightmare when the outsourcer finds they have to pay extra fees to expedite the work to meet their desired schedule. All of this is separate from the language barrier that makes it difficult to set up win-win contracts or contract incentives that work with the service provider's culture. Always work with negotiators and legal experts familiar with both the service provider's legal culture and language.

One issue that arises from outsourcing but is rarely addressed until too late is liability. If you outsource development of a code fix or website and it fails, who is liable? If your contract isn't properly structured, you are liable to your customers for the cost of losses and the fix of code created by the company you outsourced the work to. If you outsource IT security or system support to a third party, your contract must address liability or else you're on the hook for any losses caused by their delays in fixed problems.


Your company must set up structures to vet talent before outsourcing work or you risk hiring cheap people whose mistakes have to be fixed by someone even more expensive. You must take care to communicate project requirements, performance standards and schedules or else you're at fault for these failures to communicate. Scope creep is common in all IT projects, but even worse when you're outsourcing functions. Finally, your IT contracts must address liability concerns and protect the security and privacy of your customers.

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