The current issue of ESOMAR Research World is largely about one of the biggest trends in market research to occur during the past 10 years. No it’s not about Social Media, DIY, or any other cool new methodology like text mining. It’s about much larger yet much quieter trend, offshoring.
As part of April issue the FTO (Foundation for Transparency in Offshoring) was allowed to submit a 800 word by-lined article about the organization and it’s mission. Two responses/rebuttals to the article are also published in the issue, including one from Diane Bowers of CASRO. ESOMAR members can click the image below to log in and read the entire issue.
For others who are interested I’ve posted the FTO article and two responses below. I would be very interested in hearing your thoughts on this important issue, so feel free to comment after reading. We have been promised an official stance in regard to the FTO from ESOMAR, and I will post it here on the blog as soon as we receive it.
Transparency in research offshoring
Is it time to discuss our industry’s unspoken policy on offshoring and associated risks?
By Tom H. C. Anderson
Offshoring is most commonly defined as the relocation of key business processes - predominantly by companies headquartered in North America and western Europe - to countries located primarily in Asia, South America and eastern Europe, in order to exploit substantially lower labour costs.
By this definition, conducting a global study using local fieldwork personnel would NOT be considered offshoring, because the primary motivation for enlisting local fieldwork services is not to save money, but to meet exacting study design requirements.
This definition also does not equate ‘offshoring’ with ‘outsourcing’, because offshore operations can be either ‘captive’ (wholly-owned), independent third-party or joint-venture enterprises.
The market research industry - like many other industries - has become increasingly dependent on cost efficiencies from offshoring. This is particularly true of large, multi-national research companies who now offshore many critical research services, from data collection to advanced analytics. A frequently quoted study by ValueNotes suggests as many as two-thirds of research companies now offshore; though factoring in non-Honomichl 50 firms, this is probably an overestimate.
Of course, there is nothing outwardly wrong with saving money by hiring qualified candidates in ‘non-Western’ countries who will work for lower wages. Certainly, a major attraction in offshoring hotspots is that they offer an abundance of candidates with graduate and post-graduate degrees.
But while there may be cost benefits, there are also significant risks that are rarely discussed. Many offshoring destinations do not have comprehensive legal and regulatory safeguards in place. For clients whose research suppliers deal with intellectual property and/or customer survey or database information and offshore - depending upon which processes are offshored and the country where the offshoring occurs - the risk that sensitive data may be misappropriated, misused, leaked or stolen is very real.
Market research buyers have at best a vague sense, if any, that their projects are being offshored, and very few have sufficient information to assess the relative strengths and risks associated with offshoring. They simply defer to their suppliers, who in many cases have a highly vested, potentially conflicting interest in protecting and advancing offshoring practices.
A recent multi-country survey, conducted among 850 research buyers and providers by the Foundation for Transparency in Offshoring (FTO), a non-profit research industry advocacy group, exposed a significant transparency gap. Clients were far more likely than suppliers who offshore, to see problems with offshoring various market research processes, especially with regard to innovation-related projects such as concept and ad testing.
Sonia Baldia, who is an FTO Advisory Board member and a legal expert on offshoring, explains: “Clients absolutely need to know about any offshore subcontracting and the location in order to gauge risks and protect themselves. Many offshoring destinations do not have well-developed intellectual property laws and data protection laws. On top of that, their court systems can be a significant trap for the unwary because of the difficulties in enforcing contracts. Liability depends largely on how the service delivery model is structured, and in many cases, the local jurisdiction’s laws might be weak, confusing, unenforceable in practice, or even nonexistent.”
Some of the most popular offshoring destinations provide no statutory or other legal protection for trade secrets, including intellectual property and proprietary customer data. As such, parties must rely primarily on contracts that can be exceedingly difficult to enforce. In fact, the World Bank often ranks these destinations exceptionally low on contract enforcement.
Some of these locations also log notoriously high employee attrition rates, leaving clients extremely vulnerable to potential confidentiality breeches. According to Ms. Baldia, evidence suggests that a majority of instances of data misconduct stem from employees or ex-employees of an offshore service provider.
Citing recent cases reported in international media involving theft of trade secrets from offshoring, Ms. Baldia observed that local authorities “did not recognise ‘misappropriation’ of trade secrets and the client did not have any contractual arrangements with the ex-employee whereby it could directly enforce its rights.”
Some European researchers have mistakenly suggested that EU data protection directives (written before the breakthrough of web-based surveying) and ISO standards insulate them from similar concerns. But while the EU directive is intended to protect its citizens’ data privacy, it does not account for all potential security or confidentiality breeches.
FTO has introduced a self-certification process modelled after the EU Safe Harbor Compliance Framework. Details at http://www.offshoringtransparency.org.
The risks and opportunities
By Sunil Mirani
First of all, even sending work to Canada is ‘offshoring’; so long as it goes outside the home country, it is offshoring. Second, while it certainly started with cost saving as the primary motive, it is much beyond that. Companies are now offshoring as much for access to skills (that they don’t get in their home country), and other advantages (such as faster cycle time, flexibility of resourcing), as they are for cost. Therefore, it is more accurate to portray this as globalisation of the human resource supply chain, rather than merely exploiting substantially lower labour cost. In the process, if companies benefit from a cost point of view, so be it.
Tom refers to risks such as protecting sensitive data, but in fact, the data is completely masked and cannot be linked to an individual. However, the main point is - this risk is as high (or low) as any other supplier; whether they are offshore or onshore is irrelevant. The more important issue is the measures taken towards data security, and I would argue that many of the large, established offshore players (for whom this is their main business), have far more robust security systems than many local smaller agencies onshore (just compare the number of Indian BPO players with ISO 27001/BS 2711 certification with that of onshore providers).
I can’t comment on the regulations in China; however, India has made great strides in the last few years to protect its leading position among outsourcing nations. The Information Technology Amendment Act makes it the responsibility of the outsourcing company to maintain reasonable security practices and procedures, and makes any such disclosure of sensitive data punishable by law, by recognising both criminal and civil liability. Further, India’s leading IT-BPO industry body, NASSCOM, has vigorously promoted self regulation through establishing the Data Security Council of India (DSCI) to promote best practices in data security and privacy. There is ample protection for both market research and outsourcing companies against data pilferage/theft.
[Sunil Mirani is founder and CEO of Ugam Solutions Pvt. Ltd.]
Transparency is already required
By Kevin Menk and Diane Bowers
Business process outsourcing is commonly and appropriately exercised across all industries in global commerce - the survey research industry is no exception. Based on knowledge of our members and our representation of survey research businesses, CASRO does not support the assumption that research companies have forfeited due diligence in selecting and managing subcontracted service providers, whether these suppliers are located offshore or ‘down the street.’
The quality and reputation of a survey research firm - indeed, of the research industry itself - depends on the integrity of research and business practices, including prudent supplier selection and supervision. Codes of standards and business practices, like CASRO’s Code and the ICC/ESOMAR International Code, require transparency. Transparency is also a requirement for the nearly 300 companies around the world (thus far) that are certified to the ISO research quality standards. These codes and standards call for particular care to ensure that adequate security measures are observed, guarding the data protection rights of individuals when personal data are transferred from one country to another. And, yes, these legal issues may be more complex and require more due diligence when subcontracting internationally (our members have shared their subcontractor experiences and solutions in educational forums).
Providing information and guidance to companies about managing their subcontractor relationships through legal contracts, auditing, and quality controls, continues to be important work for our associations and industry. But the presumption that Asia, South America, and eastern Europe are out-of-bounds for offshoring, is inconsistent with the global research community’s hard work in developing harmonious ethical and quality standards for our growing, and increasingly multi-national, research industry.
[Kevin Menk of Strategic Resource Partners is board chair of CASRO and Diane Bowers is president of CASRO and a member of ESOMAR's Professional Standards Committee.]