Often, a company will choose to assign some of its tasks to outside parties, often parties from other countries. This is known as outsourcing. In many cases, outsourcing can be economically beneficial to the company, allowing it to save money by hiring people to do tasks for less money. However, the process of outsourcing brings with it a number of risks that can cause financial problems.
One of the main risks of outsourcing a task is that it will not be done to the specifications required. By having an outside company perform a task, a company runs the risk that the outside party will not have the same skill set and experience as in-house employees. A drop in quality can result in a drop in sales, as well as harm the company's reputation among consumers.
Another risk for a company that outsources to foreign countries is bad press. Some companies, particularly large companies, face criticism for hiring workers from other countries, generally at cheaper wages, instead of using American employees. If a company comes under significant attack for outsourcing, then its reputation may suffer, leading to a loss of business. However, smaller companies that use only modest outsourcing stand a low risk of this occurring.
Not all foreign countries have the same economic and political stability enjoyed by the United States. Many countries, particularly those that are not democratic, may change laws that affect the business climate or experience political events -- revolutions, wars, sudden changes in leadership -- that make it difficult or expensive for outsourcers to complete a task. Therefore, companies that outsource to unstable countries run the risk of an interruption in business.
Intellectual Property Losses
Many times, outsourcing involves sharing proprietary information with an outside party. This raises the risk that this information will be shared with another party that will try to capitalize on it. For example, the design of a piece of software may be shared by the outsourcing company with a competitor. In some countries, intellectual property laws are not strong. This can result in severe losses for the hiring company.