Outsourcing business functions to lower cost countries
is no longer optional for many businesses - it is a commercial
imperative to stay competitive. But there are many pitfalls for the
The upsurge in outsourcing to other countries shows no signs of
abating. In fact, the recent media frenzy over
'off-shoring' is evidence the practice is growing rapidly
and is now creeping into new business areas like human resources,
finance and legal services
Late last year, Qantas chief, Alan Joyce, made headlines for his
alleged plans to restructure Qantas and locate its engineering and
maintenance operations in Asia. And, earlier this year, three of
the four major retail banks (Westpac, NAB and ANZ) were reported to
be off-shoring jobs to Asia. The Sydney Morning Herald reported
that ANZ is planning to off-shore at least 1000 roles ranging
"from analysts and 'collections associates' (debt
collectors) to a health and wellbeing consultant..." to the
The drivers behind the overseas outsourcing wave are plain to
see. In a global marketplace Australian businesses are challenged
by high local labour costs and a strong Australian dollar.
Countries like India, China, Malaysia and the Philippines now
have an abundance of highly educated and skilled people ready to
service Australian businesses at much lower costs than can be
obtained in our own country.
But it's not all about saving money. There are other
advantages to off-shoring, including the opportunity to leverage
different time zones to operate client service and processing
centres 24 hours a day.
Outsourcing also offers the Australian operations of a business
the luxury of focusing on core business propositions while support
functions are managed expertly off-shore.
But, there's the hitch. When key parts of your business are
being managed thousands of miles away, how do you know it's
being done right?
There are particular risks associated with off-shoring and
managing these is critical if your business is going to reap the
benefits. Regulatory compliance, privacy and data security and
intellectual property are the most common areas of major risk.
Business processes and white collar roles (HR, finance, legal)
are often heavily regulated so you need to carefully assess the
ability of off-shore service providers to achieve Australian legal
and regulatory compliance (while also complying with applicable
Examples of important regulatory requirements include the
Australian Prudential Regulation Authority standards, Financial
Services Authority and ASX reporting requirements and
PRIVACY AND DATA SECURITY
Businesses sending Australians' personal information
off-shore must ensure they comply with all applicable Australian
privacy laws. In particular, National Privacy Principle 9 requires
businesses to ensure the off-shore service provider handles
Australian personal information in a manner consistent with
Australian privacy law and takes reasonable steps to maintain the
security of that information.
Recent legislative reform, including that proposed by the
Privacy Amendment (Enhancing Privacy Protection) Bill 2012, takes
this further and curtails the transfer of certain personal
information and risk of compliance to off-shore service
Off-shore jurisdictions may have a very different approach to
the creation, protection and enforcement of intellectual property
rights. Business should take steps to ensure their portfolio of
valuable intellectual property is not compromised. This may include
entering into ancillary instruments or registrations to ensure that
a business' intellectual property rights may be protected and
enforced in the relevant off-shore jurisdiction.
The reality is that many established off-shore service providers
are already well versed in meeting the operational, legal and risk
mitigation requirements of Australian businesses. According to a
McKinsey & Co article, many such providers "have made
significant investments in the control and monitoring mechanisms
required for regulatory requirements, and complex finance processes
such valuation reviews, legal entity control and tax preparation.
Some have even hired risk-and-control officers to deal with
Sarbanes-Oxley, Basel II and SEC reporting.".
By engaging the right off-shore service provider under a
well-drafted contract, Australian businesses may well enhance their
ability to forge stronger ties with Asia and improve their
competitiveness in the global marketplace.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Most awarded firm and Australian deal of
Australasian Legal Business Awards
Employer of Choice for
Equal Opportunity for Women
in the Workplace (EOWA)
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Treasurer Scott Morrison recently announced changes to a number of 2016 Budget superannuation contribution measures.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).