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As the global economy shifts, the global market for offshoring services continues to expand. Countries that would previously never have been considered are now proving to be tempting destinations for outsourcing services.

As we reported in this blog, forthcoming tax changes may affect the pricing available from the established Indian outsourcers. To the extent there is a material increase in the pricing from Indian providers, this should only serve to fuel the exploration of other destinations.

For example, Latin America continues to be a growing destination for offshore services. While Latin America may not be as attractive from a pure rates perspective, it offers some benefits of time zone alignment and potential cultural similarities for certain service scopes. However, there are also unadvertised risks in moving to Latin America, as outlined in a posting by CIO Magazine.

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Cloud computing is getting a lot of traction in a time of shrinking budgets. Industry experts speaking at NASSCOM 2011 are expecting cloud based services to be roughly a quarter of the outsourcing industry over the next two years.

So the business team is ready to move everything to the cloud. “But wait,” says the General Counsel, “if someone else has our email what happens if they get served with a subpoena? They won’t protect our information the same way we would.”

While there is no case law directly addressing discovery of corporate email held by cloud providers, there are some instructive analogs found in cases involving third-party email providers under the Stored Communications Act (“SCA”) and in cases addressing the concept of “control” under US Federal regulations that should be considered by large corporations thinking of migrating email to the cloud.

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Posted In: Cloud Computing
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Two recent events serve to highlight the importance of proper due diligence and appropriate contractual protections when dealing with cloud-based and other hosted service providers:

  • According to a lawsuit filed in US District Court in Hawaii by the producer of the syndicated children’s TV series “Zodiac Island,” an entire season of the show has been wiped out thanks to a fired employee at its data-hosting company who hacked into networked computers and destroyed its work. See WeR1-CyberLynk Complaint 110403
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“What does that mean?” may be one of the most common questions a lawyer asks when working on the early stages of a sourcing deal. Sometimes it’s because the client is using company-specific or industry-specific jargon the lawyer hasn’t heard before. But more often it’s because the lawyer is trying to convert a concept or common parlance (which may seem intuitive to the client) into clear, unambiguous and precise contractual language.

Sometimes these conversations end up sounding like this recent deposition (or result in these types of conversations after the contract is signed):

Plaintiffs’ Lawyer: During your tenure in the computer department at the Recorder’s office, has the Recorder’s office had photocopying machines?

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Following unprecedented back-and-forth with representatives from various governments, the ICANN board announced its plan to approve the new generic Top-Level Domain (gTLD) program at a special session to be held on June 20, 2011, at the ICANN meeting in Singapore.

The approval of the gTLD program and the associated Guidebook assumes the release of an updated version of the currently 312-page Guidebook for a month of public comment on April 15, 2011. ICANN has also released a draft timeline of dates based on the current plan.

Assuming these new dates stick, the application period for new gTLDs could begin at the end of October. Many potential applicants have kept their plans on hold pending more definitive timelines, but now is likely the time to start the process in earnest.

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Posted In: Industry Trends
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Beginning later this year, ICANN is expected to accept applications for new generic domain suffixes for industries, interests and communities, such as “.bank,” “.movie” or “.music.” In addition to the generic terms, this round also includes the potential for various geographic tags that are not country codes (e.g., “.nyc” or “.andes”), brands (“.pillsbury”) as well as non-Latin characters (e.g., “中 国”). ICANN is expecting to approve between 200 and 500 new gTLDs in this round and to have new application rounds approximately every two years.

For more information, please see the Pillsbury Client Alert.

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If you have an Indian supplier supporting your business, chances are that your supplier is taking advantage of the STPI (Software Technology Parks of India) and SEZ (Special Economic Zones) schemes. These provide certain tax incentives to qualified companies–effectively lowering their cost of doing business and allowing more competitive pricing. On February 28, 2011, the new Indian Union Budget was presented to the Indian Parliament. Although the budget includes numerous changes relevant to businesses operating in India, certain tax-related provisions may limit the benefit of these structures in the near future.

For more information, please see the Pillsbury Client Alert.

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In a speech on economic development in January this year, UK Prime Minister David Cameron addressed the need to develop businesses in sectors that will be key to the UK’s economic future. The government’s plans to foster development include direct changes to government procurement practices to foster contract awards to innovators.

The Prime Minister acknowledged a tendency for government agencies to take the safe path, passing over well qualified smaller companies in favour of the big service providers. For years it was said “Nobody gets fired for buying IBM”. In government circles it seems the same could be said for entrenched service providers like Accenture and Capita (see Cameron’s speech on Government Procurement from February this year).

Now, all government departments are being urged to consider smaller, regional suppliers of goods and services. The Government’s goal is to award 25% of contracts to small and medium enterprises (SMEs). This echoes Cameron’s pre-election opinion that public procurement needs to move towards “a culture that’s a little bit more experimental and is prepared to take a bit of a leap sometimes with a small organization.” This includes ensuring that businesses that are “inventive and doing exciting things” win contracts to supply services to government, rather than simply awarding work to “the big players.”

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After more than 20 years of modern outsourcing, articles and studies still proclaim a failure rate ranging from 25 – 50%. Skeptical? Just talk to a sampling of those who have reasonable experience at managing an IT outsourcing relationship, or just do a little online searching.

It’s no secret that managing an outsourcing relationship is not easy. Unfortunately, for a number of reasons, the industry has latched onto the nebulous concept of governance as the means to do it. Do a little more searching and you’ll find a plethora of opinion regarding its meaning and applicability – reminiscent of the Saturday Night Live skit where a new product named Shimmer was both a floor wax and a dessert topping.

While there are no silver bullets, we believe there are some fundamentals that can be put in place to help avoid outsourcing failure: it begins with how the relationship was initially formed (way back when the sourcing strategy and RFP were developed), how the customer set up its retained operation, and, obviously, how the relationship is actually being managed.

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Posted In: Service Performance
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Conventional wisdom among technology and outsourcing practitioners is that neither side would willingly litigate an enterprise technology or outsourcing agreement. Each party has too much to lose from the public airing of a failing relationship. If that is true, why are we seeing more media stories of disputes around large-scale technology failures such as the litigation around the outsourcing of the Indiana welfare system. Within the legal profession, is the focus shifting from deal making to dispute resolution?

The market for large technology and outsourcing services is changing in five important ways:

1) Companies are becoming ever more dependent on more advanced and integrated technologies. Implementing them is inherently more complex and therefore risky.

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