The current issue of ESOMAR Research World is largely about one of the biggest trends in market research to occur during the past 10 years. No it’s not about Social Media, DIY, or any other cool new methodology like text mining. It’s about much larger yet much quieter trend, offshoring.
As part of April issue the FTO (Foundation for Transparency in Offshoring) was allowed to submit a 800 word by-lined article about the organization and it’s mission. Two responses/rebuttals to the article are also published in the issue, including one from Diane Bowers of CASRO. ESOMAR members can click the image below to log in and read the entire issue.
For others who are interested I’ve posted the FTO article and two responses below. I would be very interested in hearing your thoughts on this important issue, so feel free to comment after reading. We have been promised an official stance in regard to the FTO from ESOMAR, and I will post it here on the blog as soon as we receive it.
Transparency in research offshoring
Is it time to discuss our industry’s unspoken policy on offshoring and associated risks?
By Tom H. C. Anderson
Offshoring is most commonly defined as the relocation of key business processes - predominantly by companies headquartered in North America and western Europe - to countries located primarily in Asia, South America and eastern Europe, in order to exploit substantially lower labour costs.
By this definition, conducting a global study using local fieldwork personnel would NOT be considered offshoring, because the primary motivation for enlisting local fieldwork services is not to save money, but to meet exacting study design requirements.
This definition also does not equate ‘offshoring’ with ‘outsourcing’, because offshore operations can be either ‘captive’ (wholly-owned), independent third-party or joint-venture enterprises.
The market research industry - like many other industries - has become increasingly dependent on cost efficiencies from offshoring. This is particularly true of large, multi-national research companies who now offshore many critical research services, from data collection to advanced analytics. A frequently quoted study by ValueNotes suggests as many as two-thirds of research companies now offshore; though factoring in non-Honomichl 50 firms, this is probably an overestimate.
The problem
Of course, there is nothing outwardly wrong with saving money by hiring qualified candidates in ‘non-Western’ countries who will work for lower wages. Certainly, a major attraction in offshoring hotspots is that they offer an abundance of candidates with graduate and post-graduate degrees.
But while there may be cost benefits, there are also significant risks that are rarely discussed. Many offshoring destinations do not have comprehensive legal and regulatory safeguards in place. For clients whose research suppliers deal with intellectual property and/or customer survey or database information and offshore - depending upon which processes are offshored and the country where the offshoring occurs - the risk that sensitive data may be misappropriated, misused, leaked or stolen is very real.
Market research buyers have at best a vague sense, if any, that their projects are being offshored, and very few have sufficient information to assess the relative strengths and risks associated with offshoring. They simply defer to their suppliers, who in many cases have a highly vested, potentially conflicting interest in protecting and advancing offshoring practices.
A recent multi-country survey, conducted among 850 research buyers and providers by the Foundation for Transparency in Offshoring (FTO), a non-profit research industry advocacy group, exposed a significant transparency gap. Clients were far more likely than suppliers who offshore, to see problems with offshoring various market research processes, especially with regard to innovation-related projects such as concept and ad testing.
Transparency?
Sonia Baldia, who is an FTO Advisory Board member and a legal expert on offshoring, explains: “Clients absolutely need to know about any offshore subcontracting and the location in order to gauge risks and protect themselves. Many offshoring destinations do not have well-developed intellectual property laws and data protection laws. On top of that, their court systems can be a significant trap for the unwary because of the difficulties in enforcing contracts. Liability depends largely on how the service delivery model is structured, and in many cases, the local jurisdiction’s laws might be weak, confusing, unenforceable in practice, or even nonexistent.”
Some of the most popular offshoring destinations provide no statutory or other legal protection for trade secrets, including intellectual property and proprietary customer data. As such, parties must rely primarily on contracts that can be exceedingly difficult to enforce. In fact, the World Bank often ranks these destinations exceptionally low on contract enforcement.
Some of these locations also log notoriously high employee attrition rates, leaving clients extremely vulnerable to potential confidentiality breeches. According to Ms. Baldia, evidence suggests that a majority of instances of data misconduct stem from employees or ex-employees of an offshore service provider.
Citing recent cases reported in international media involving theft of trade secrets from offshoring, Ms. Baldia observed that local authorities “did not recognise ‘misappropriation’ of trade secrets and the client did not have any contractual arrangements with the ex-employee whereby it could directly enforce its rights.”
Some European researchers have mistakenly suggested that EU data protection directives (written before the breakthrough of web-based surveying) and ISO standards insulate them from similar concerns. But while the EU directive is intended to protect its citizens’ data privacy, it does not account for all potential security or confidentiality breeches.
FTO has introduced a self-certification process modelled after the EU Safe Harbor Compliance Framework. Details at http://www.offshoringtransparency.org.
[Tom Anderson is managing partner of Anderson Analytics, LLC and founder of the FTO. Sonia Baldia is a partner at Mayer Brown LLP and co-chair of the firm's India Practice.]
The risks and opportunities
By Sunil Mirani
First of all, even sending work to Canada is ‘offshoring’; so long as it goes outside the home country, it is offshoring. Second, while it certainly started with cost saving as the primary motive, it is much beyond that. Companies are now offshoring as much for access to skills (that they don’t get in their home country), and other advantages (such as faster cycle time, flexibility of resourcing), as they are for cost. Therefore, it is more accurate to portray this as globalisation of the human resource supply chain, rather than merely exploiting substantially lower labour cost. In the process, if companies benefit from a cost point of view, so be it.
Tom refers to risks such as protecting sensitive data, but in fact, the data is completely masked and cannot be linked to an individual. However, the main point is - this risk is as high (or low) as any other supplier; whether they are offshore or onshore is irrelevant. The more important issue is the measures taken towards data security, and I would argue that many of the large, established offshore players (for whom this is their main business), have far more robust security systems than many local smaller agencies onshore (just compare the number of Indian BPO players with ISO 27001/BS 2711 certification with that of onshore providers).
I can’t comment on the regulations in China; however, India has made great strides in the last few years to protect its leading position among outsourcing nations. The Information Technology Amendment Act makes it the responsibility of the outsourcing company to maintain reasonable security practices and procedures, and makes any such disclosure of sensitive data punishable by law, by recognising both criminal and civil liability. Further, India’s leading IT-BPO industry body, NASSCOM, has vigorously promoted self regulation through establishing the Data Security Council of India (DSCI) to promote best practices in data security and privacy. There is ample protection for both market research and outsourcing companies against data pilferage/theft.
[Sunil Mirani is founder and CEO of Ugam Solutions Pvt. Ltd.]
Transparency is already required
By Kevin Menk and Diane Bowers
Business process outsourcing is commonly and appropriately exercised across all industries in global commerce - the survey research industry is no exception. Based on knowledge of our members and our representation of survey research businesses, CASRO does not support the assumption that research companies have forfeited due diligence in selecting and managing subcontracted service providers, whether these suppliers are located offshore or ‘down the street.’
The quality and reputation of a survey research firm - indeed, of the research industry itself - depends on the integrity of research and business practices, including prudent supplier selection and supervision. Codes of standards and business practices, like CASRO’s Code and the ICC/ESOMAR International Code, require transparency. Transparency is also a requirement for the nearly 300 companies around the world (thus far) that are certified to the ISO research quality standards. These codes and standards call for particular care to ensure that adequate security measures are observed, guarding the data protection rights of individuals when personal data are transferred from one country to another. And, yes, these legal issues may be more complex and require more due diligence when subcontracting internationally (our members have shared their subcontractor experiences and solutions in educational forums).
Providing information and guidance to companies about managing their subcontractor relationships through legal contracts, auditing, and quality controls, continues to be important work for our associations and industry. But the presumption that Asia, South America, and eastern Europe are out-of-bounds for offshoring, is inconsistent with the global research community’s hard work in developing harmonious ethical and quality standards for our growing, and increasingly multi-national, research industry.
[Kevin Menk of Strategic Resource Partners is board chair of CASRO and Diane Bowers is president of CASRO and a member of ESOMAR's Professional Standards Committee.]
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18 responses so far ↓
1 Ian Kiernan // Apr 7, 2010 at 10:57 pm
I have had the opportunity to work with many, many operations companies both onshore and offshore.
To state the obvious, quality and service will vary from company to company regardless of where they are located. I have worked with many USA based companies that have serious operational and IT challenges.
I think it is very unfair and dangerous to make sweeping generalizations that your data or quality of service may be at greater risk if it is processed offshore versus onshore. This is simply not true.
If you are going to select a new vendor, you need to do your due diligence to make sure the company has the infrastructure, people and security measures to meet your needs. These due diligence checks need to be done regardless of where the vendor is located.
I also think Sunil gets it right when he mentions that the underlying issue is “globalization”. At my company, over 50% of our business is international data collection and we have seen a massive increase in the amount of data collection that we are doing in emerging markets. In many cases, this data collection needs to be done using local resources in each country. This trend will continue and as an industry, we would be naïve to say that it is dangerous to work with local companies in these countries. We need to work with them and we as an industry need to help these companies get better.
Lastly, I think it is disrespectful to thousands of people in our industry to use images such as the one that is used at the top of this article when discussing this topic.
I have
2 Tatiana // Apr 8, 2010 at 8:15 am
We were once in Russia commissioned a study which had the following “back-log” of subcontractors:
Italian client commissioned research to an German research agency, who in turn sub-commissioned to an Austrian company, who then sub-commissioned to an Indian-based company, who then sub commissioned to us (Russian-based company). So the actual cost of the project was about 10% of what was initially paid by the Italian client. Since then, I am clearly for the transparency in off-shoring.
3 Frank Leinweber // Apr 8, 2010 at 9:04 am
I don’t believe the issue here is so much about quality of resources or support, rather identification of the location where the work is being conducted.
There is no doubt in my mind that there are more than credible alternatives to executing research from the US. We would, as an industry, be naive to think that quality research can only be conducted here.
My question is, “If a client is interested in where any aspect (design, data collection, analysis, etc.) of their project is being conducted, don’t they have the right to know?” After all, they are paying for it. If, for whatever reason, they prefer for it to be conducted here, Europe, Asia, or anywhere else and have a legitimate reason for doing so, why shouldn’t they be accommodated? If one takes exception to the request then they can choose not to take on the work. Simple.
If a client does not care where a project is executed, trusting a research company/partner to make those decisions, then the point is mute.
We should remain honest and open our professional relationships and these things will take care of themselves.
By the way, not sure what the intent of the image above is, I though it was Obi Wan Kenobi but can certainly see how it could be viewed as offensive.
4 Ann Margreth Hellberg // Apr 8, 2010 at 11:30 am
Agree it is important to continue to have this on the agenda. I am not very surprised when it comes to the reaction from CASRO.
5 Alastair Bruce // Apr 8, 2010 at 11:41 am
I totally agree Tom. The current defacto practice of keeping offshoring hidden from clients is dishonest and has to end!
6 Jon Leiman // Apr 12, 2010 at 5:27 pm
“I’m very happy to be a part of this important initiative. Have just posted a link to the article and FTO site on the MRB blog http://marketresearchbulletin.com/?p=484 “
7 Patrick Glaser // Apr 12, 2010 at 10:19 pm
The following is text that I had used in responding to Tom after he had initially contacted MRA for feedback into FTO. Though there are several concerns MRA has regarding the FTO, Tom still encouraged me to re-post which reflects his openness and integrity here.
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I can say that because associations have the ability to impact the marketplace, they must be very careful in the types of activities in which they become involved or endorse. As such, there are a few concerns that presently prohibit MRA from an endorsement of the program.
Your program has the admirable goal of improving transparency between clients and vendors. This is something that MRA has also endeavored to do through its various programs (i.e., MRA Review Program, Exchange Evaluation Program), so I believe it’s very much a shared value between yourself and MRA. The crux of programs like those that MRA and yourself maintain is that transparency allows the client (or other stakeholder) to make a judgment call on whether a particular service is right for them, where other types of certification or accreditation programs seek to impose a right/wrong way of doing business. In MRA’s view, as well as my own, transparency really is the appropriate way to foster good business and data quality in research, particularly in an industry based on an “applied practice” of science where cookie-cutter solutions are antithetical to what we do.
Where we diverge a bit is in the administration of the program as well as the meaning it brings to the issue of offshoring. The first issue of concern would be that offshoring isn’t inherently a negative concept. There may be certain locations that have a better supply of resources to meet needs, multinational companies may (or may not) have some of their full-service work done in various countries (particularly in the EU) and it may be possible to get equivalent quality at a lower cost in foreign locations. I believe you’ve noted all of these things between your posts and your Web site.
However, without a specific reference to the countries that the entity is doing business with, it would be impossible for the intended audience for the FTO seal to understand how the offshoring is being done and under what circumstances. Moreover, because a separate seal is offered for those that do no offshore, the implication will no doubt be a negative one for those companies that are engaged in offshoring in one form or another.
Additionally, though there may also be legal issues surrounding offshoring as well as quality and other issues, it would be difficult (if not impossible) for the client to understand how those requirements are being met by the vendor, without a more detailed discussion. This discussion should occur anyways, with or without the seal, though vendors may appropriately wish to protect their “value chain” of services (wholly owned or not). Moreover, as MRA’s Counsel, LaToya Rembert Lang, put it during a recent discussion, liability still remains for the company that entered into the initial contract, unless excused.
Further, since there is no audit, the FTO seal may be used fraudulently by unscrupulous companies who claim falsities about their business. The seal may give unwarranted confidence to clients, unless this risk is highlighted on the FTO Web site and in promotions. Without underscoring this idea, the seal could potentially be more harmful than good.
Finally, I would add, that MRA’s Code of Professional Ethics and Standards does require principles of honesty in researcher’s work and the need to follow relevant laws and regulation. Further, these types of concerns should be built into contracts and would be subject to additional standards violations proceedings. Indeed, this is the approach that may be most advisable for concerned researchers. Right now, offshoring is addressed, in this sense, in this general manner in MRA’s codes. Of course, MRA’s Professional Ethics Committee would consider including more specific verbiage about offshoring in the Code if it is proposed to them and they agree that it is necessary and appropriate.
In a nutshell, these are MRA’s concerns with the FTO and other similar efforts. The association appreciates and encourages the dialogue as well as your interest and activity in developing solutions to industry problems. The whole industry would be better off if all researchers were as active as you’ve been with this program.
8 Tom H C Anderson // Apr 14, 2010 at 6:06 pm
Thanks for posting Patrick.
It’s probably easier for smaller firms to think long term and do the right thing since we don’t have all those shareholders to pacify each month. But I think larger firms are also starting to understand the benefits of transparency and are beginning to certify with FTO.
Please do not think that the FTO wants to compete with CASRO or MRA for membership dollars. FTO is not a ‘non-profit’, certification is FREE! We would love it if a responsible trade org took over this important task. However, as it is a simple principle as important as sample quality, we would not want to hand it over to an organization which would bury it as standards were pegged to the lowest (large member) common denominator.
That said, I think you have really misunderstood the FTO article and website even though we tried to be as clear as possible.
As I’m sure you are earnest in wanting to understand the FTO and make the right decision on behalf of the MRA I would welcome the opportunity to discuss it with you over the phone were there would be less chance of any misinterpretation.
Perhaps we could record said friendly conversation/debate and post it here on the blog. Or better yet if you prefer, we could ask Bob Lederer to host the discussion on his online radio show?
It would be the FTO’s hope that after understanding the need for Offshoring Transparency better, the MRA would either make certification a mandatory part of co. membership or at least strongly support it.
How about it?
9 LaToya Lang // Apr 19, 2010 at 1:47 pm
It appears the intent of the FTO is designed to disclose that the company “offshores”. If the program, however, is a self certifying entity, how can the accuracy of a company’s assertion be subject to verification - especially for the purposes of full disclosure and transparency? Otherwise, what is the intent of the program beyond associating companies with offshoring practices? Without any set guidelines as to the scope and whether or not the program would apply to all companies located only in the U.S., E.U. or worldwide, the program lacks the strength of enforcement in its endeavor; instead it can create bias for those that choose to cooperate and opt for full disclosure. If the program is perceived as a biased for those companies who either engage or do not engage in offshoring practices, the program will be open to immense abuse practices.
Moreover, the FTO provides that there are concerns that companies are sending their data to countries without adequate protection measures. If the FTO is based on the EU Safe Harbor principles, those principles only ensure that the United States adhere to adequate protection measures required for the Data Protection Principles. It does not provide any context for concern for the additional countries and their access to data.
As an additional point, it is also not clear what happens to the information collected by the FTO. Since the information serves no other purpose than for self-certification and enforcement or audits are not apart of the process; is collecting any information needed? Why not provide those who simply want to use the seal the option to obtain the seal without the need to disclose any information? If there is a purpose in gathering the information, what is the intent and for what purpose is the information used?
MRA reinforces the policy and standard that survey research companies should practice honesty and integrity and offer full disclosure in their business practices to the client that does not endanger the privacy protections afforded to respondents. Transparency is an important endeavor and any program for certification of transparency should be implemented in the same spirit of full disclosure and practices that would benefit the profession as a whole instead of divide it accordingly.
10 Tom H C Anderson // Apr 19, 2010 at 4:54 pm
Happy to discuss the above during the debate with Patrick.
[RE the data being collected, as stated earlier, it will soon be available on the FTO site (just as it is on the other two sites you mentioned). The intention is to allow for due diligence and open discussion between clients and suppliers in regard to these important issues. ]
11 Sapna Gautam // Apr 21, 2010 at 5:20 am
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12 Tom H C Anderson // Apr 21, 2010 at 9:34 am
Check this guy above out. He tried to spam the last 10 blog posts with similar messages. I actually decided to let this one through just to make a point.
Follow the link to the company, you won’t be disappointed (if you’re the road runner LOL). “ACME Data Solutions”
13 Tom H C Anderson // Apr 26, 2010 at 9:21 am
@LaToya
As you are corporate counsel for MRA lets be clear, you’re not saying that MRA’s current “policy and standard that survey research companies should practice honesty and integrity” are sufficient to protect clients from data privacy and IP related risks are you?
14 Tom H C Anderson // May 14, 2010 at 10:45 am
Unbelievable: Indian business offshoring firms look to prisons to keep labor costs down http://ow.ly/1L6nN If you like this please also visit http://ow.ly/1L6FA
15 CASRO ISO Certification Push Fails! // May 25, 2010 at 6:29 pm
[...] I don’t know what I find more humorous. The fact that CASRO is so out of touch with the business of the industry they supposedly represent, or the fact that just a couple of weeks ago, in response to FTO certification, they claimed that they “do not support the assumption that research companies have forfeited due diligence by not certifying“. [...]
16 The Market Research Industry’s First Internet Meme Competition! // Jun 7, 2010 at 12:26 pm
[...] limitation is your creativity. (For a simple example, I recently appropriated the Star Wars “Obi-Wan” meme to make a point about offshoring in a recent blog [...]
17 Anuradha // Sep 2, 2010 at 4:34 pm
Tom,
I’ve seen it from all sides, the clients, the large MR agencies and the offshore service providers. The fact that may not be captured in the survey and that lot of MR suppliers and offshore service providers will tell you is that a lot of clients usually DO know where their work is going and most of them trust that the large MR supplier will handle the issues concerned(the IP, the data protection etc).
Obtaining an offshoring transparency certification does not take away from the fact that there are risks to outsourcing work anywhere if quality standards are not adhered to. This risk exists both within the US and outside it. In MR and analytics there exist global shortages of talent (trained talent would be a better way to say it). This is one of the key reasons that a lot of companies outsource, yes another big one is labor cost advantages that they can accrue. A lot of times it is not the lack of transparency of where the work goes that is the major concern but who is the cheapest offshore provider it goes to!! Sometimes cheapest services and goods usually come with a tradeoff-low quality and risk to data and IP.
I’m not sure getting a certificate of offshore transparency mitigates that risk. What needs to be addressed along with it is the larger issue of how MR suppliers and clients choose sub-contractors who finally execute their work whether in the US or outside it.
18 Tom H C Anderson // Sep 3, 2010 at 8:49 am
No one said certification mitigates risk of the offshoring process. However, it may well mitigate some legal risk for the offshoring party in the West in case the client accuses them of deception or fraud which usually means treble damages being awarded.
Anyway, all that aside, the purpose of certification is transparency and openness. This way client and supplier can discuss the pros and cons and make the correct decisions.
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