Thought for the day:Indian summer of outsourcing

Legal expert Peter Hall asks if the benefits outweigh the risks of offshore deals.There has been a lot of publicity lately about...

Legal expert Peter Hall asks if the benefits outweigh the risks of offshore deals.There has been a lot of publicity lately about the fabulous outsourcing deals available from big Indian services companies. Along with great prices, the skills and qualifications of their staff are impressive, but before you jump in you should think carefully about the risks.

For example, even the best business continuity plan may not provide cover in the event of a war between India and Pakistan.

And, even if there is no shooting, there are many legal hurdles in outsourcing to non-EU countries.

Where any data processing is involved, there are real data protection issues. EU and UK law does not allow for the export of personal data to countries outside the European Economic Area if those countries do not have adequate data protection laws. It will be your company, as the EU-based organisation, facing sanctions under EU data protection law if the outsourcing provider bends the rules.

You can get around this issue by using contractual terms requiring the provider to protect personal data and the correct procedures to make sure they are doing that. That may add to the cost of the outsourcing deal but is a legal requirement.

And what about protection of intellectual property (IP)? Indian IP laws will protect work created in India but they are not identical to UK law. For example, if you are outsourcing database development or Web development, you may qualify under UK law for both copyright and database right protection.

Database rights are a powerful IP right created in the EU in the late 1990s. In India, those rights do not exist. IP laws vary all over the globe, so it pays to exercise due diligence.

There are other legal worries. For example, it is common for Indian outsourcing suppliers to operate through a UK subsidiary with few or no assets, and that will be the company you will be asked to contract with. Is that what you want?

If so, you will need to ensure that the company actually providing the services in India is bound by all the contractual requirements and that you have rights against that company. Don't forget TUPE - the transfer of undertakings regulations that protect employee rights. TUPE technically applies even for an offshore supplier.

So think twice before jumping at that great offer. It may still be a terrific deal, but will almost certainly be trickier and more expensive than it appears at first sight.

What do you think?
Are you ready to take the risks of offshore IT outsourcing? Tell us in an e-mail >> reserves the right to edit and publish answers on the Web site. Please state if your answer is not for publication.

Peter Hall is technology partner at international corporate law firm Wragge & Co.

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