There are risks in every business. If anybody says that a specific business is risk free, he must be lying. Risk becomes bigger in business that consists of two different countries. Yes, we are talking about offshore outsourcing risk. There are several risks associated with offshore outsourcing. Some of them are explained below;
Cost Reduction Expectation is the biggest risk in offshore outsourcing risks. It has nothing to do with offshore outsourcing as it involves the expectations the internal organization has about how much the saving will be with offshore outsourcing. There is a great offshore outsourcing risk that expected targets may not be achieved.
Data Security is one of the main auxiliary objectives of any organization. When working internationally, there is a lot more need to secure the data provided by client. For example in IT services, you know very important information of your client that if disclosed, may harm the client. This risk grows higher in offshore outsourcing.
Loss of Business Knowledge is another risk of offshore outsourcing. There are several companies that are market leader just because of their own way of working. The expertise of the company is the property and competitive advantage for the company. In offshore outsourcing there is a risk of loss of business knowledge.
Rules and Regulations of a country is one of the risks that can harm the profitability in most dangerous way. There are instances when government changed the rules and regulations and companies have to suffer. For example, government of country A is providing tax free first five years to the foreign companies which outsource its activities to the home country. Company B decided to outsource its activities to that area due to tax free five years. When company B fully outsources its activities, government changed the regulations and now there is no tax exemption available to the companies.
Employee Turnover is another risk associated with offshore outsourcing. When you outsource your activities to another country, you have to train the employees. There is heavy cost that an organization spends on the training. But as there is a trend of offshore outsourcing so there is a possibility that your trained employees may get a better offer from a company beginning to outsource its activities to that country. So there is always a risk of loosing your key personnel in offshore outsourcing.