Perspective: The hidden risk in outsourcing overseas

While most of the recent data breach headlines have focused on consumer information and privacy, data theft is not limited to the consumer market.

An equal, if not larger, amount of effort is directed towards the misappropriation of an even more valuable asset: intellectual property.

Hypercompetitive entrepreneurs, both inside and outside the United States, have discovered that a lot more money can be made by stealing state-of-the art product designs, new drug formulas or software and entertainment products than was ever possible with stolen credit cards.

While the loss of a credit card is momentarily irritating and inconvenient, the loss of breakthrough technology such as a next-generation aircraft wing has broader economic consequences. It also affects a far greater number of people than does consumer fraud. And due to our almost delirious desire to outsource everything we once held near and dear, the incidence and threat of valuable data loss is accelerating.

Companies will continue to trade off the benefits of low-cost labor for the risks of intellectual property theft without fully understanding the implications.

Unfortunately, it is rarely reported. As such, companies will continue to trade off the benefits of low-cost labor for the risks of intellectual property theft without fully understanding the implications.

Based on indisputable historical evidence of the illegal manufacture and sale of black-market products, from tennis shoes to watches to software, do we really believe that the schematics of our next-generation processor will remain safe and secure, given that they are being transmitted overseas in digital form?

Historically, data privacy and protection have been administered using manual means. Our companies trust us, as long-term valued employees, with their most sensitive and valued information. Often this data takes the form of next-generation product designs and differential advantages.

Western European and American businesses are contracting people they have never met, living in countries with no concern about proprietary data.

But today--for near-term cost savings, access to emerging markets and, in some cases, the availability of talent itself--Western European and American businesses are contracting people they have never met, living in countries with no concern about proprietary data or this nation's innovative edge. I commend India for taking steps to tighten laws around data protection for foreign work handled by Indian companies and for instilling harsher penalties for data breaches. However, there are far more countries that do not regard data protection a priority.

The loss of proprietary design data for next-generation technologies--whether they take the form of pharmaceuticals, electronics, manufactured goods, computer software or entertainment products--posses a real threat to the future well-being of our economy.

Perhaps our government should enact legislation that mandates the protection of these assets when they are transferred overseas as a part of on outsourcing effort. While it is one thing to offshore the cheap jobs, it is another thing to breed low-cost competitors for the future.

Biography
Reed Taussig is chief executive officer of Vormetric, a provider of security systems for protecting enterprise information.

More Perspectives

Risks are in Everthing

I believe that there is a risk for doing anything anywhere. The risk of IP theft is never 0% even if it is in the US. Take the case of Antrax that caused havoc in the US. One of the best laptops - IBM(Now Lenovo) Thinkpad is manufactured in China. It's duplicates did not get sold in the Blackmarket as far as I know.

Commodity items such as shoes and other stuff that get sold in the blackmarket are a case of Brand Theft and NOT IP theft. Lets not mix the two. These two are completely different topics for discussion. Data Security is an important issue and the industry will find a way to nullify risk in that domain.

I am not backing up outsourced destinations, but I strongly belive in outsourcing as it is the only way to provide better cheaper and faster service to consumers globally.

I agree

I agree with Reed. There are many security aspects that need to be guaranteed and protected by legislation. Take the example of IP Theft of GM's Opel Frontera, that has supposedly been copied by Jiangling of China. Such cases are not isolated, I am sure there are numerous companies elsewhere as well that blatantly copy clothes, designs, shoes, - other consumer items. This is not brand theft, this is IP theft as the products are sold under a different brand name - as in this case, Jiangling. It is easy to find such examples in manufacturing as products are relatively easier to identify. However, in the case of the knowledge industry, such theft is not reported as much as it probably happens, and only extremely blatant thefts come out in the open.

IP protection is an excellent mechanism, in the 21st century, it probably has equal, at least more daily application to our lives, than for example the NPT that foreign policies focus on.

[Len Bullard]

Security Isn't A Low Budget Cost Item

While it is true that balancing costs across sources is an important business practice, so is balancing risks. Some technical work cannot be outsourced because it cannot be secured by any means and the risks are zero-sum games.

Awareness of this is demonstrated in contracts for this work that stipulate that if the company is proposing to outsource the work into non-securable installations, they cannot bid the contract. The customer is willing to pay higher costs for the assurance of a secure installation.

expedia outsources to the phillipines

they ask for all your credit info. and don't know
much of anything as far as travel details in the
US. is concerned. you give these people all
your personal info. is'nt it safer dealing within
the US?

[Too Old For IT]

Outsourcing to countries ...

... that executives will never visit, and certainly will never move to in order to supervise.

Their trophy wife needs a place to shop, and it might hurt their daughter's self esteem to be asked to put a burkah over that crop-top n low-riders combo to make the local religious council happy.

[Will Jurgens]

Ad Hominem

Get your own prejudices sorted and keep this sort of opinion to yourself.

[shanedr-1964330144520240703050]

Outsourcing

Companies simply will not worry about data theft until it actually hurts them financially. Outsourcing only produces quick profits, over the long term it reduces profits. Until stockholders force boards of directors and CEO's to place equal concern on profits ten years from now as they do on this quarters profit the outsourcing will continue until they get bit really hard by their foolishness.

[b2bhandshake]

Risk...

Risk and rewards go hand in hand....as any business executive will tell you. Risks of Offshoring and outsourcing are well recognized; However, the mitigation strategies are still maturing. This in itself may translate to an opportunity for savvy consultants. :-)

- Mohan; Author: http://www.offshoringmanagement.com