Compliance in an Outsourced World
by Karen Wilson — Managing Partner, Citadel Compliance LLC
The recent massive accounting fraud at Indian outsourcing giant Satyam has focused attention on risks associated with outsourcing. The Satyam case offers multiple lessons for companies considering outsourcing. Risks are not limited to the financial wherewithal of the outsourcer. Because the outsourcer controls key business operations of the client and interfaces directly with the client’s customers, often from offshore sites, regulatory risks associated with these services can be magnified. This article examines trends in the outsourcing industry and changes in services and delivery models that have a direct impact on the client’s compliance with laws.
The outsourcing trend remained strong in 2008. At $360 billion annually and growing, outsourcing’s appeal is not limited by business type or size and thrives despite, or because of, challenging economic conditions.
American companies and government agencies historically have outsourced low-value operations to reduce expenses, realign resources, and shift risks. Businesses are drawn to the appeal of shifting so-called “non-core’ business operations to a third party who will improve the balance sheet and guarantee cost reductions and access to leading-edge technology and innovation. For some, outsourcing is the answer to poorly managed operations that sap resources and distract attention from the business. In outsourcing parlance, this is known as “your mess for less.” European companies have embraced outsourcing as well. In 2007, Europe outpaced the U.S. for the first time in the number of new IT outsourcing deals and that trend continued in 2008. Mergers between outsourcing competitors in 2008 should spawn better capabilities and stronger competition in the future. Major outsourcers and their specialties include:
