Ethics of Outsourcing

Many times, business organizations encounter the dilemma of ethical decision making. “If a CIO says ‘I’ve never faced an ethical issue’, they’re not living in the real world,” says Larry Ponemon, chairman and founder of the Ponemon Institute, a security and privacy research think tank based in Arizona.

Though business relationships are more economic in nature, their moral and ethical dimensions have an equal impact on profitability. When it comes to the ethics of outsourcing, matters become more complicated, as parities involved are continents away. A judicious choice between the right and the wrong person to do business with will determine the future of your outsourcing venture.

Why is it important to do business with organizations that are ethical?

Ethical compliance presents a strong public image and upholds the integrity and character of an organization. Whether personal or professional, not many of us will want to associate with unethical individuals. It makes a lot more sense to do business with ethical organizations as it has a direct influence on the overall functioning of a business.

When things go wrong!

This is the acid test. The way your outsourcing partner reacts during a crisis is the best indicator of whether it is ethical or unethical. When there is mutual trust and responsibility towards each other, a crisis management mechanism will automatically evolve. Ethics creates a space for itself and in ensuring the smooth running of businesses.

Legal aspects

Legal perceptions may differ from one nation to the other and ambiguity could arise when a dispute occurs, leaving both parties in a fix. The association becomes easier when the parties have a legal, moral and ethical obligation to comply with the agreement, with due respect to international law.

Information Security

The core concern of outsourcing ethics is confidential information security. Privacy and security fall under the ‘no compromise zone’. Sujoy Chohan, a consultant at IT research specialists, Gartner Company, says, “If there is any industry which is investing in security tremendously, it is the offshore industry, whether it is India or elsewhere”.

Chief Privacy Officers are highly concerned about proper information security practices. If your outsourcing partner does not have adequate information security measures, it might be wise to stay clear of them.

How does an outsourcer identify organizations which are doing ethical business?

Everyone claims to be ethical. Though a clear definition of the parameters for identifying organizations with ethical conscience will be a difficulty, some factors are vivid.

Vendor reliability

It is nothing but trust that makes someone want to outsource. Weigh the dependability and reliability of the organizations to which you want to outsource.

A clear definition and practice of the ethical rules and privacy policies of the organization like non-disclosure of trade secrets, secrecy and non-disclosure contracts with staff, third party service providers and visitors is a prerequisite. This will reassure the outsourcer that it is safe to do business with a partner who is miles away.

Employee Credibility

Information security will largely depend on the people who handle the information. Organizations that implement tough employee credibility measures have a direct implication on its outsourcing ethics.


Clear and open communication channels are another sign of an ethical company. When a project does not go the right way, an ethical partner will always keep you informed of the problem and possible solutions and time needed.


A thorough enquiry should be made about the organization and their nature of work management. Talking to the employees and references will give a clear idea about the professional approach of an organization. Check if the following requirements are met by your outsourcing partner:

oProper information security systems

oAppropriate quality certifications such as ISO 9000 or SEI CMM

oAppropriate programs to protect the trade secrets of its clients, partners and their customers


oTraining and upgrading the security skills and awareness of employees.

oSafety of electronic data storage

oPresence of a whistleblower

oProper arrangement with third party service providers

How does being ethical help in reducing the risks of offshore outsourcing?

You can always find companies that offer services at very low costs. An ethical concern might seem to be a costlier choice. However, the price difference could be deceptive as the variation will only be in the initial cost. In the long run, the overall cost will prove to be much lower when you are working with an ethical partner.

Ethical vs. Unethical partnership

Unethical partnership:

oThe cost of maintaining the project and the relationship will be high

oLack of trust

oStrained relationship

oNon disclosure of facts

oLack of transparency

Ethical Partnership:

oReduced costs

oReduced risk

oCommon focus

oRelationship equilibrium

oKnowing the risks and managing them together

oProper management systems

Client responsibilities

Before making an outsourcing decision, the outsourcer should also be clear about the responsibilities that he should share. This will help in building a healthy relationship base.

owillingness to discuss

omanage expectations

olast agreed document should be the basis

obuild flexibility to contracts

oopenness to intermediate scope and price review

Make sure that all the loop holes which can disrupt the outsourcing process are dealt with. The benefits of outsourcing are sure to show up with safe outsourcing practices.

Outsourcing Information Technology – A Case Study

One of the few ways many small business owners are able to grow their businesses is through outsourcing. With many small business owners working 60 to 80 hours per week, outsourcing can free up a lot of time and energy so that the business owner can concentrate on working ON their business, and not IN their business. 

My accounting and payroll firms free up a lot of the time and effort that small business owners would have to spend doing these tasks, and it allows them to focus their efforts on what is productive. Within my firm, we have gone the same route with many of our processes – particularly our information technology infrastructure. 

The issue of outsourcing for our firm was one of necessity. If we were going to grow our practice, we had to have more productive hours in a day. The odds of us petitioning to lengthen the amount of hours in a day to a number greater than 24 was highly unlikely. What we had to do was to free up hours that were being wasted so that we could use those as productive hours. One of the key areas that we found was information technology. 

Our firm chose to implement cloud computing throughout. The only thing we are responsible for at our firm is maintaining our desktops – which is easy with no external software to mess them up.    All of our software is hosted on remote servers in secure facilities, and the best part is that we have access to every file within the firm from any place we can login with our laptops. We even offer Quickbooks hosting to our clients where they get secure logins to their hosted application and file. This is a huge advantage to both us and the client because it eliminates the headaches of having to coordinate getting our accountants copy of the file since we are both working off an up-to-date data source.

Now that we have outsourced this function, I do not know if we could possibly go back to the old way of doing things. This saves us so much time and worry. We never have to load software, schedule backups or worry about the server crashing. It all happens automatically.   

While every business model is a little different, it is something that any small business should at least evaluate – especially if the owner is short on time resources and is not “good with computers.”

Outsourcing Statistics – What Figures Will Tell You

If you are still in the dark about the many benefits of outsourcing then you are left behind already – way behind. In recent years, outsourcing has gone from being a hot trend to a standard in business. Outsourcing statistics will tell you that the number of companies that are employing this strategy is increasing every year and the practice has now spread to industries that are not traditionally known to employ outsourcing. Now, even entrepreneurs and small business entities are taking advantage of the many benefits that hiring offshore companies and individuals brings.

When the concept was first introduced during the 1970s (though some experts would argue that the history of outsourcing goes way back), only manufacturing companies are contracting out some or majority of their job functions to other companies. Then as it is now, the biggest reason to outsource is to save money. Wanting to expand yet realizing the cost implications of hiring new personnel and creating new departments, companies simply thought of contracting out their menial yet still important requirements to outside parties. The result, companies are still able to pursue their growth aspirations and cut back on cost at the same time.

At the onset of globalization and with the invention of the Internet and other communication technologies, the vast pool of highly skilled yet affordable workforce that are present in the East and other developing countries became accessible to Western companies. Countries like the Philippine and India are just two of the Asian countries that more developed countries turn to for cheap yet quality work. By the year 2005, outsourcing statistics have shown that the industry has reached the $10 billion mark. It is continuously growing almost exponentially since then and the interesting part is that it is not expected to slow down even in the face of the recession that the United States and other major economies are experiencing.

Here are some more interesting outsourcing statistics and facts for you:

. Information Technology is still the most outsourced type of job accounting for almost 30% of the whole industry. It is closely followed by human resources and sales.

. The most popular source of labor are Philippines, India and China. Companies favor these three countries because of their stable communication infrastructure and the presence of highly skilled and trained individuals who are fluent in both written and spoken English.

. It has been estimated that more than 4 million jobs have been transferred from Western countries to developing countries because of outsourcing. This number is expected to rise exponentially in the years to come.

. The economic development of India as well as other developing countries has been largely attributed to their ability to provide cheap yet reliable workforce.

May these facts and statistics on outsourcing provide you with an idea of how big the concept is and what it can do for your business. Your hesitation to outsource may be affecting your company’s chances to compete and grow in this highly competitive business environment. Therefore, you must seriously consider outsourcing to expand your business and make it globally competitive.