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4 Risks of Offshoring Your Software And How To Mitigate Them.

Tuesday 27 of February, 2018.
Reading Time: 3 minutes.
By Avantica


Nearshore Risks.

So far, we’ve talked extensively about the benefits of nearshore for software engineering and IT. It’s obvious that we think it is the best option for outsourcing, compared to offshoring in faraway countries. Here are some of our favorite benefits, as a review:

● Same time zone

● Geographically and culturally close

● Enables agile methodologies

● Less costly 

However, we also acknowledge that there are risks involved with outsourcing to other countries, even in nearshore partnerships. Below we will list the four most common risks and how you can mitigate them with the right nearshore partnership.

Business Laws Change Outside the Country.

Different laws are always a risk when working with companies out of your country. You grow up accustomed to certain laws and as a business person, you know what you have to work with. When moving some operations or software solutions offshore, the different laws can blindside you and you might not feel 100% confident with what you need to add to contracts to make sure you get what you want. 

Solution: Look for nearshore partners who have headquarters in the United States. This means that any contracts that you sign will be following the same laws that you are familiar with. This also means that your new partner will be bound by the same strict regulations as any other company in the U.S., but with other flexibilities that come from nearshore.

Tax Implications Between Employees and Contractors.

Many countries, including the United States, regulate what constitutes an employee versus a contractor very strictly, since it affects the taxes that a company has to pay. What you don’t want are outsourced contractors appearing like employees and raising your taxes and expenses. This is especially important for those companies with staffing contracts.

Solution: You want a nearshore partner that pays very close attention to this and makes sure to draft contracts in such a way that it is clear that their contractors are not employees Your nearshore partner should help you separate the contractual relationship between their contractors and your employees. This is necessary because the contractors are employees of the nearshore company, and taxed in their home country. There is no reason to raise your expenses in this way, if your nearshore partner is cooperating the way they should.

Confidentiality Breaches.

Different countries treat confidentiality differently. What might be an obvious subject of discretion for you might not be for your offshore provider. You don’t want to risk the reputation and important information of your country to untrustworthy companies.

Solution: Look for nearshore partners that have strong NDA agreements, confidentiality clauses, and cyber insurance. These agreements will be clear that any breaches will be linked to specific penalties. And the liability insurance will protect both the provider and the client when it comes to confidentiality, IP protection, and breaches.

The best agreements are between two American companies, if you that is where you are located, which brings us back to the second point. Not only do these agreements and clauses ensure discretion and caution with client information, but they strengthen protection of your IP. This allows for a stronger business relationship between your companies, which will ensure trust and more success.

Ethical Offshore Companies.

If you are paying an offshore company to perform services or deliver software, then you might be concerned about how ethical these outsourced companies are. Everyone has heard of the horrors of those sweatshops that exploit what is practically slave labor. Not only is this bad ethically, but it gives you a very bad reputation and can even give you legal problems in your home countries.

Solution: There are certain countries that are famous for labor exploitation. You can easily avoid most of these countries by nearshoring in Latin America. Countries like Costa Rica have very strict labor laws. You can easily check with your potential partners or providers to make sure they are paying their employees fair and legal wages, as well as giving them good working conditions.

About Avantica.

Avantica prides itself in mitigating all of the above risks. We are very careful to set up our business relationships to promote trust and success. Needless to say, we draft contracts to ensure IP protection, confidentiality, and clear division between contractors and employees. Our headquarters are in the United States, so you can be confident that any agreements and contracts between us will be uphold to the best of United States law.

If you are looking for a software partner who will work towards your own business goals and success, then Avantica is your solution. We offer dedicated teams, team augmentation, and individual projects to our clients, and are constantly looking for the best methodologies in order to give you the best results. 


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