The ever-increasing development of legislative actions from world governments and amount of provider knowledge and ability to comply are becoming factors buyers of offshoring services are considering in signing new deals. Such buyers have learned that the outsourced work supporting their core competencies must meet legislative criteria if the buyer and provider are to benefit from an outsourcing agreement. With recent laws enacted and amendments to existing ones, managing only the service levels and not contributing with innovation for the constantly changing government conventions, can be the difference between a signed contract and buyer’s seeking contract termination.

Legislative factors have become somewhat complex. Legislative actions such as the Securities Exchange Commission’s Sarbanes-Oxley Section 404 and Canada’s Securities Administration MI 52-111, both pertaining to governance and accountability for internal controls, have become well known during the last batch of outsourcing deals between the US and Canada. These legislative actions have cost publicly traded companies billions of dollars to comply with, yet there are still buyers and providers who do not fully understand the difference between a SAS70 Type I and a Type II audit. With the SOX July 15, 2007, mandate around the corner, companies are continuing the struggle towards compliance after having just gone through the motions of an audit and not understanding the value created. Because of these compliance issues, the buyers are expecting providers to be proactive in meeting these regulations. Buyers are looking to ensure that the provider will be an integral part of the design and testing of internal controls, as well as the operating effectiveness between the two parties.

Another example of legislative impact is India’s F.No.500/67/2003-FTD enacted by the Ministry of Finance Central Board of Direct Taxes for BPO units operating in a captive environment, under a multi-national company (MNC.) Though critics argue this amendment is somewhat ambiguous, unsure buyers are requesting further explanation when considering establishing BPO operations inside India. Several other developing economies are taking measures to decrease risk with the intent to attract greater amounts of foreign direct investment with similar legislation, and at the same time are becoming more attractive than the more known offshoring destinations for small-scale operations. This requires providers to become experts by increasing awareness around destinations that have not been historically known as marketable solutions for offshoring

Buyers are paying attention to host governments in the country of their current outsourced operations by relying on the government’s effectiveness and ability to fully understand impacting legislation from a buyers standpoint. Buyers are also interested in how these governments will stay attractive as premier destinations before investing millions of dollars in establishing operations abroad.

Buyers expect that the provider will also contribute to formulating the strategy around these factors. Items open for discussion can range from Canada’s B-10 recommendation from the Superintendent of Financial Institutions to India’s newest version of the second Amendment Act of 2002 for company insolvency.

Fluctuating currencies and decreasing labour pools are continuing frustrations for buyers and providers. (I was referring here to Canada seen as a ‘broker jurisdiction’ with the exodus referring to Canadian IT jobs moving into Asia, Latin American and Russia by 2010; I believe the number to be around 75,000 out of the 550,000 employed in Canada…maybe another article?) The simple economic model of supply and demand is resulting in increasing costs, which are limiting buyers’ options in the US. Legislation will continue to play a key role in the buyer decision-making process with attention given to immigration policies, labour skill diversity, intellectual property protection, and customer data privacy being examples.

Buyers are going to look beyond which provider has the economies of scale and ability to deliver at a lower price. They have learned from their previous deals that the landscape has changed from doing it faster and cheaper than my competitor can through offshoring, to understanding the impact associated with legislative actions, corporate-governance regulations, and host government actions being equally important to cost savings during deal negotiations.

About Sean Halverson

Sean Halverson, a senior consultant with Alsbridge, has managed offshoring initiatives in Malaysia, Costa Rica, Slovakia and India, and has experience in outsourcing bid and engagement.