Even in tough economic times, the outsourcing of business services continues to be a booming industry.
But not everyone feels comfortable handing over sensitive corporate information, particularly to companies that also provide services to the competition. No need to worry though, experts say, as long as you take the proper precautions.
After a dip in 2008-2009 in the wake of the global financial crisis, outsourcing is robust, whether for tax consulting, advisory services or human resources management. Particularly strong is the financial and accounting outsourcing segment, which grew at 12 percent in 2011, according to research company Everest Group.
The industry is also developing fast in Ukraine after having trailed for several years behind heavyweight outsourcing countries Poland and the Czech Republic. Moreover, the trend is visible both domestically, through the expansion of shared services centers that take over certain corporate duties from local companies, and internationally, as with Nestle setting up a major financial and human resources center in Lviv in 2011.
Yet with Ukraine’s notoriously poor business climate and corrupt judiciary, the idea of handing over sensitive information about one’s company to a third party can make some uneasy. Indeed, the potential damage can be huge from even accidentally leaking private information or making a mistake in tax filings.
But experts say that, like with any other business transaction, hiring outsourcing service providers can be safe as long as people take the proper precautions.
While corporate espionnage and human failings should not be ignored, it is always possible to strengthen legal protections by making sure there is a non-disclosure agreement as part of the contract signed between the parties, says Valeriy Bondar, head of the global auditing and advisory network HLB’s Ukraine office.
Getting the contract right also determines the level of protection, he added, whether this concerns data protection, negligence or intentional mistakes. “Just like with all other services – doctors, painteers, clearners – if they break the contract it is criminal (and you can go to court),” Bondar said.
“Often the liability of the outsourcing company is limited to the amount of professional fees paid for the services which entail such liability, except for the cases if any damage caused by the outsourcing company to the client due to willful or negligent actions of the outsourcing company,” explained Anastasiya Surzhko, a lawyer at German consulting firm Roedl & Partner.
As a result, experts explain, it is important to stipulate the precise damages that misconduct or mistakes could entail, experts note. Another option is to take out insurance on the contract – often done by outsourcing companies themselves, which would otherwise be unable to handle the potential liabilities.
“Year by year customers are becoming savvier and more demanding. They want to see utterly detailed description of our services and clear division of responsibilities, which are reflected in the service level agreement,” said Daniil Shash, director Intercomp Global Services Ukraine, the local office of an international outsourcing service provider.
Such agreements are increasingly numerous and detailed, he added, and are primarily used by large service providers focused on long-term relationships.
Experts also point to a company’s reputation as a key determinant before signing any contracts for the outsourcing of corporate services. Firms with a solid reputation and a long-time horizon will not be interested in some short-term gains from potential misconduct, HLB’s Bondar said, so the company’s management has an incentive to make sure everything goes smoothly.
One of the ways this works in international dealines, he elaborated, is that companies operating out of Ukraine will often go through intermediaries in the foreign markets to increase confidence. Thus, Bondar explained, companies using German capital and nationals will grab up all the contracts coming out of Germany, for example, as they will inspire the most trust to manage the outsourcing contracts going to Ukraine.
Companies can also undergo annual audits to ensure compliance with internal codes of conduct and proper regulations, Intercomp’s Shash added. “Intercomp’s successful passing of this audit confirms the effectiveness of internal controls and the reliability of accounting and payroll services,” he said.
Nonetheless, mistakes can happen, as with any other business or project, notes Oksana Voynarovska, partner for labor law at Vasil Kisil and Partners. But it may not be mistakes or ill intentions on behalf of outsourcing service providers that companies have to fear the most.
”The specific nature of our market is that the bigger threat is not from the outsourcing companies … but from the state organs,” she said.
No matter how hard a person works or succeeds in meeting deadlines, Ukraine’s complicated tax system and heavy bureacracy mean that minor mistakes are easy to commit. The other side of the coin, however, is that the fines and sanctions are manageable by Western standards.
“So some companies (that provide business services) decide to pay rather than go to court,” Voynarovska said.
Kyiv Post editor Jakub Parusinski can be reached at [email protected]
