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Vendor organizational risks

2,436 Comments · Business outsourcing

The risks associated with the BPO vendor’s organization are perhaps the most difficult to accept because they are not easy to control. This risk is also enhanced when the vendor is offshore.

The risks associated with the vendor organization can range from business practices to authenticity of certification and reference claims.

Vendor business practices can vary greatly around the world. Practices that are clearly prohibited or considered highly questionable in the United States can be routine in the vendor’s home country.

The problems of bribes, kickbacks, on money exchanged under the table have affected U.S. businesses abroad in a wide range of industries.

The U.S. Foreign Corrupt Practices Act of 1977 is designed to domestic companies from participating in practices abroad that are proscribed at home.

Most BPO vendor companies were founded after the 1977 Act was passed and are generally managed by individuals who are sensitive to the need to conform to its strictures.

Market-based governance mechanisms also compel vendors to conform to U.S. standards.

Still, the potential for abuses is present, and the frequency of abuse may increase in the Wild West atmosphere that is shaping up overseas as increasingly more vendors seek to strike it rich in BPO gold.

Another risk concerns the potential for vendors to overstate their competencies and to exaggerate the business and technical certifications they possess and the clients they serve.

This risk can be mitigated through comprehensive due diligence that insists on objective proof of certifications and permission to talk to representatives from the vendor’s client list.

Vendors that refuse to share certification evidence on balk at client referrals should be treated with caution.

Vendor organizational risk also includes its HR practices. Many manufacturers that chose to outsource to foreign companies turned a blind eye to labor practices long banned in the United States.

Child labor, excessively long hours, and outright sexual and other forms of harassment on discrimination are not uncommon in some foreign labor markets.

Firms choosing to outsource business processes should consider the labor practices of the vendor and determine whether the risk of participating in domestically reviled practices abroad can damage domestic reputation and goodwill.

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