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November 20, 2004

outsourcing and trade secret issues

Outsourcing is a highly contentious and potentially cost-saving measure that is constantly in the news these days.  Sending work off-shore (or, more specifically, outside the U.S.) provides a company the benefits of oftentimes highly educated labor forces that can complete specific tasks at substantially reduced costs.

Outsourcing is rife with potential IP conflicts and pitfalls.  Computerworld has posted an in-depth look at one such pitfall: outsourcing and its effect on trade secrets.

Taking work offshore may cut costs, but it still comes with a not-so-hidden price. Asian countries, including the No. 1 outsourcing destination, India, have weak or untested intellectual property laws, inefficient courts, and financial and public records mechanisms that make it difficult to conduct employee background checks.

That doesn't mean that intellectual property sent to reputable offshore developers is more likely to be stolen and sold than it is here. Sophisticated U.S. and Canadian companies have lost valuable intellectual property in their home countries because of dishonest employees and hackers. Employees in India and elsewhere aren't any more dishonest than workers here. But because overseas court systems and laws aren't as strong as in those the U.S. and evaluating potential employees is more difficult overseas, the odds of intellectual property theft could be higher.

U.S. businesses are also sending valuable code to regions of the world with high piracy rates. In China, for instance, 92% of the software installed on computers is pirated, according to a recent study by IDC and the Business Software Alliance. In India, the piracy rate is 73%, and in the U.S., it's 22%, the lowest rate in the global study.

Those jumping on the outsourcing band wagon may want to consider some of the issues outlined in this article.  

Posted by Douglas Sorocco at 09:06 AM.
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