SPECIAL REPORT

High-Tech R&D: Too Vital To Outsource?

Although outsourcing has cast a long shadow over many IT professions and functions, there are glimmers of sunlight for U.S. employees involved in certain aspects of the computing industry.

For example, although it has been affected by outsourcing to some degree, research and development retains much of its shimmer.

“Most companies are reluctant to outsource IT activities related to R&D for new product development,” said Lance Travis, vice president of outsourcing strategies at Boston-based AMR Research, in an interview with the E-Commerce Times. “They consider R&D the crown jewels of the company and don’t want to lose them.”

In fact, when AMR Research conducted a study last year, it found that 50 percent of R&D groups in the auto, high-tech, aerospace and defense industries had no interest in outsourcing IT support; just 12 percent said they were outsourcing any IT projects related to R&D. Companies in the technology sector exhibited the least interest, according to Travis: Just 4 percent said they do any outsourcing of this function.

Internal Growth

Even when companies do consider outsourcing functions that require sharing proprietary or extremely sensitive data, they generally look within the United States — or at a company that melds both onshore and offshore services, many industry executives said.

“Because the biggest factor in most R&D groups about outsourcing is risk, they look to reduce risk by going with a global delivery model — for example, split between on- and offshore,” Travis said.

That has been the case for Stout Systems, an Ann Arbor, Michigan-based company that develops contract and outsourced software and embedded-systems projects for a wide variety of clients, including the big three automotive companies and several retailers, owner and president John Stout told the E-Commerce Times. “Most of our clients with whom I am experienced would not outsource sensitive proprietary information overseas because of a perceived lack of security,” he said. “By far, most of our competitors are U.S.-based.”

Splitting the Bill

Likewise, Altoros Systems, a global software development and consulting firm, has seen business increase dramatically since it set up U.S. offices in Tampa, Florida, and Chicopee, Massachusetts, said Renat Khasanshyn, director of North American operations for the company, which has headquarters in Minsk, Belarus.

“The fact we’re located in the United States became one of the reasons our current clients choose us,” Khasanshyn told the E-Commerce Times. “From a client’s perspective, it’s very difficult to believe a company outside the States. The client is not assured, if something goes wrong. What should I do? Which court do I go to? It’s very important for the client to have a service provider in the United States.”

If cost is a development client’s most important concern, then Altoros sends approximately 90 percent of the code-writing work to Minsk, Khasanshyn said, while doing just 10 percent on-site. If, on the other hand, time-to-market is the main concern, the developer may keep about 30 percent of the work inside the United States while turning over 70 percent to Minsk. “This way, we can achieve almost a 24-hour development cycle,” he said.

“I would say it’s not possible to do 100 percent offshore,” Khasanshyn noted. “If you do [R&D outsourcing], you have to manage it. It’s a way to decrease costs. It’s not a way to eliminate costs.”

The Flip Side

Also, there are signs that offshore outsourcing may not always live up to its reputation, Stout noted.

“The only factor I know that is pulling development work out of the U.S. is cost. But recently, we have seen articles that show the cost savings of developing software overseas is often not nearly what the originating company believed it would be,” he said. “The requirements-gathering and design work is almost exclusively done at home, because it is found that these functions do not outsource overseas effectively.”

Still, the success Microsoft, Intel and Motorola, among others, have found by shifting important product development to their Chinese offices could presage a shift by other organizations, said Tom Banning, a vice president at Bain & Co. Bain is a global business consulting firm that has worked with more than 2,500 multinational clients around the world.

“Bain & Company believes that over time, these initiatives will likely expand into more basic forms of research,” Banning said. “It is now becoming increasingly conceivable that companies will globalize their R&D, ultimately shifting upwards of 40 percent offshore to captive operations in non-headquarters countries or to appropriate outsourcing contractors.”

And as technology and business processes become increasingly sophisticated and proven, U.S. companies may become even more willing to look outside borders. “At Bain, we foresee that new innovation will certainly continue to occur in the U.S., but less at the individual product level and more on the higher domain of business models, service industry concepts and global value chains,” Banning said.

Security Blanket?

It seems, therefore, that one of the most secure careers for prospective job-hunters is in managing outsourcing relationships.

Barring that, individuals who are more interested in a hands-on technology profession can take heart that — despite some well-covered successes by such companies as SAP, Oracle and IBM — the bulk of R&D work appears to be safe, for a while at least, in the United States. Other jobs also may be relatively resistant to outsourcing.

“I believe that the jobs that are export-proof are jobs that require direct client contact,” Allen Stern, managing editor of OOCenter.com, an outsourcing Web site operated by the same group that runs HTMLCenter.com, told the E-Commerce Times. “For example, client account managers who need to be able to handle matters locally will most likely not be offshore outsourced. Another area in which exporting is not a viable option is Web design. While the mundane production graphics tasks can be exported, it is next to impossible to export the initial design phase. This is an area in which it is imperative that a local designer understand the client’s needs and translate their needs into designs that will help the client reach their goals.”

Time for a New Challenge

Job security should not necessarily be the ultimate goal of U.S.-based workers, however, Banning noted.

“The best U.S.-based talent must challenge itself to think more comprehensively about how entire businesses and entire industries operate and then use these insights to build new companies and new industries that offer even greater value for the participants,” he said.

“Simultaneously, with more skills available at a more affordable cost on a global basis, we can actually design more efficiency into these new concepts. This is not to discount any individual hardships encountered along the way,” he said. “But ultimately, thoughtful macro-design will provide more economic opportunities for the U.S., not protectionist barriers.”

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Maintaining Global Compliance With Modern Data Privacy Laws

Data privacy laws are becoming a major focus globally as businesses scamper to meet new compliance obligations.

Privacy regulations generally bind any business or organization to store securely all data they collect or process. What they do with that data is strictly regulated.

Some 65% of the world’s population will have its personal data covered under modern privacy regulations by the end of next year, according to a Gartner report. Complying with these expanding regulations can be challenging.

Companies have had near free reign in harvesting personal data from electronic transactions and growing internet use over the last 20 years.

Many organizations involved with international commerce must alter their procedures to fall into line with new legislation. This is a priority for transactions and correspondence involving e-commerce and social media.

Expanding consumer mistrust, government action, and competition for customers pushed some governments to impose strict rules and regulations. The impact is changing the no-man’s land conditions that let both large companies and small businesses run rampant with peoples’ personal data.

“By far the biggest challenge that companies face is keeping up with the volume of data that they manage, which is also subject to ever-changing data privacy requirements,” Neil Jones, director of cybersecurity evangelism at Egnyte, told TechNewsWorld.

Assortment of Differing Demands

The EU has the General Data Protection Regulation (GDPR). In the U.K. and Continental Europe, data privacy has generally been viewed as a fundamental human right, according to Jones. In the U.S. and Canada, businesses must navigate around a growing patchwork of state and provincial laws.

Data privacy legislation in the U.S. and Canada has traditionally been more fragmented than in the U.K. and Europe. Canada’s Quebec, and the United States’ Utah and Connecticut are among the latest to enact comprehensive data privacy laws, joining the U.S. states of California, Virginia, and Colorado.

By the end of 2023, 10% of states in the U.S. will be covered by data privacy legislation, noted Jones. This lack of a universal standard for data privacy has created an artificial layer of business complexity.

Add to that, today’s hybrid work environment has created new levels of risk which has complicated compliance with myriad privacy concerns.

What’s at Stake

To enhance productivity, organizations may need to ask employees detailed questions about their behavior and work-from-home arrangements. These types of questions can create their own unintended privacy impacts, according to Jones.

The recent convergence of personally identifiable information (PII) and protected health information (PHI) has also put highly-confidential data at risk. This includes workers’ compensation reports, employees’ and patients’ health records, and confidential test results like Covid-19 notifications.

“With 65% of the world’s population expected to have personal data covered under privacy regulations by next year, respecting data privacy has never been more critical,” said Jones.

Cloud Privacy Hurdles

Data privacy and security are top challenges for implementing a cloud strategy, according to a recent study by IDG, now rebranded as Foundry. In this study, data security’s role was a prominent concern.

When implementing a cloud strategy, IT decision-makers or ITDMs are running into challenges such as controlling cloud costs, data privacy and security challenges, and lack of cloud security skills/expertise.

With a more stringent focus on securing privacy data, that issue looms large as more organizations migrate to the cloud. The IDG study found that two chief hurdles were data privacy and security challenges, and a lack of cloud security skills/expertise.

Spending on cloud infrastructure is up by some $5 million this year, according to Foundry.

“Although enterprise businesses are leading the charge, SMBs are not far behind when it comes to cloud migration,” said Stacey Raap, marketing and research manager at Foundry when the report was released.

“As more organizations move toward fully being in the cloud, IT teams will need the proper talent and resources to manage their cloud infrastructure and overcome any security and privacy hurdles that come with being in the cloud,” she noted.

Achieving Compliance

Organizations can successfully prepare for data privacy legislation, but doing so requires making data privacy initiatives a “full-time job,” Jones maintained.

“Too many organizations view data privacy as a part-time project for their web teams, rather than a full-time business initiative that can significantly impact customer relations, employee morale, and brand reputation,” he offered.

Beyond that step comes establishing holistic data governance programs that provide more visibility into the company’s regulated and sensitive data. Added to that is working with trusted business and technology partners who understand the data privacy space and can help you prepare for rapidly evolving regulations.

Perhaps the most dynamic approach is to use an Advanced Privacy & Compliance (APC) solution, suggested Jones. This enables organizations to comply with global privacy regulations conveniently, in one place.

Specifically, APCs can help achieve compliance by:

  • Managing Data Subject Access Requests (DSARs) like individuals’ right to be informed about the personal data collected on them, the right to opt-out of personal information being sold to others, or the right to be forgotten by collecting organizations
  • Assessing a company’s compliance preparedness and scope with specific regulations (e.g., GDPR, CCPA)
  • Creating and reviewing third-party vendors’ technical assessments and evaluating potential risks to consumers’ data
  • Augmenting cookie consent capabilities like integration of cookie consent into compliance workflows

Proactive Diligence

It can be difficult for companies to understand today’s rapidly-evolving privacy landscape, as well as how specific regulations apply to them, Jones said. However, by taking proactive steps, organizations can stay on top of data privacy regulations in the future.

Those steps include these ongoing tasks:

  • Monitor the status of data privacy regulations in the countries, provinces, and states where the customer base lives
  • Create a data privacy task force that can improve organizational focus and enhance senior executive attention on privacy initiatives
  • Keep abreast of new federal data privacy legislation like the proposed American Data Privacy and Protection Act (ADPPA)

It is also important to note the additional long-term benefits of data privacy compliance. In particular is bolstering a company’s overall cybersecurity defenses.

Jack M. Germain

Jack M. Germain has been an ECT News Network reporter since 2003. His main areas of focus are enterprise IT, Linux and open-source technologies. He is an esteemed reviewer of Linux distros and other open-source software. In addition, Jack extensively covers business technology and privacy issues, as well as developments in e-commerce and consumer electronics. Email Jack.

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5 Ways To Sustain an E-Commerce Business in a Recession

economic downturn recession

Talks of a possible global recession coming in the next months have been abound lately. Even if it’s not yet certain, the threat of a downturn is something that e-commerce business owners should prepare for.

In a recession, prices can soar. Supply chains can be disrupted. Customers will be buying less. How these would specifically affect your business can vary depending on the nature and niche your business operates in.

The 2008 recession should serve as a warning to entrepreneurs. Small businesses struggled during this period with many ending up shuttering their doors. As such, it’s important to strategize for sustainability in a harsher business environment.

Here are five ways to sustain an e-commerce business during a recession.

1. Prepare Cash Reserves

Having ready cash on hand provides the agility and flexibility to spend or invest when needed. But not all startups come with a stout war chest. Typically, this is where funding can come in.

“Funding isn’t just a hurdle at the start of an e-commerce business plan. Once your shop is up and running, you’ll need constant cash flow to order inventory, run effective advertising, optimize your supply chain, and innovate your products,” according to e-commerce funding firm 8fig.

A recession can compound this need. For instance, inventory and fulfillment costs typically rise during a downturn. Having extra cash can help absorb these price bumps readily.

The most straightforward way to shield a business against this is by saving to build up capital. Instead of spending profits on non-essentials, think about investing the money back into the business. Another idea is to sell some assets like machinery or equipment that may not be critical to operations at the moment. You can always repurchase them after things bounce back. Liquidate while you can.

Lastly, if external financing from investors or funding firms are available, consider those as long as you’re clear with the terms.

2. Adapt to Customers’ Needs

The pandemic emphasized how quickly businesses should adapt to the changes in customers’ buying behaviors and preferences. The lockdowns hit brick-and-mortar business hard. While many businesses failed to adjust, the ones that survived were the ones that were able to pivot quickly. Some changes were even quick to implement. For example, offering delivery services and curbside pickup options and accommodating digital payments.

“[T]he most adaptable marketers don’t do different things; they do things differently. In particular, they listen differently and they plan differently,” says Cassandra Nordlund, Director, Advisory, Gartner.

The same need for adaptability is true for e-commerce businesses. Put on your marketer’s hat and keep a close ear to what your customers are saying. Reach out and talk to them. Create a survey of what they would likely do or buy should the downturn happen. This should help to plan ahead.

For instance, a recession may compel customers to become more price conscious. If you’re in retail, you can tweak your catalog to feature and stock up on more budget items than luxury ones.

3. Become Lean and Mean in Operations

Aside from raising capital, you can also improve your finances by managing cash flow more carefully. Wasteful spending will chew away at your margins and capital.

It’s critical to streamline and optimize operations before the crunch hits. Review your business costs and see which areas you can trim. Some common sources of wasteful spending are uncontrolled use of office supplies, unnecessary technology (equipment and subscriptions), and unproductive workers. When making cuts, focus on these costs.

Keep in mind, however, that while you may be tempted to restrict spending entirely, this may become counterproductive. For instance, you may try to do away with some of the digital tools and subscriptions that you use to manage operational tasks. But if cutting them will seriously impact efficiency, it may be a bad idea to do so. Dive into the details to see how each line item benefits you before deciding whether to cut or retain it.

Remember that not all spending is bad. Opportunities may also arise even during turbulent times. Sudden market demand might make offering a new product or service profitable. If such chances do come up, consider taking the calculated risk. This is where having cash reserves also comes in handy.

4. Explore Ways To Deliver Added Value

Even with preparation, many e-commerce firms will likely still feel the brunt of a recession. A drop in sales can and should be expected as customers also tighten their purse strings.

When this happens, a common knee-jerk reaction for businesses is to compromise on price by offering discounts and price cut promotions to boost sales. However, be mindful that slashing prices can hurt margins and financial flexibility.

Warren Buffet once said about pricing, “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

Instead of slashing prices, consider other ways to offer value. Offer extended return windows or guarantees, free shipping, or loyalty points, and communicate these perks well to customers to justify your price.

But if you really need to attract the price-conscious, offer bundles rather than discounting per item. This way, you can promote your other products and services or move stagnant inventory while avoiding across-the-board price cuts.

5. Pivot the Business

Pivoting, or changing the direction of your business, can be a painful decision for entrepreneurs. But if things are looking grim, it may be a life-saving decision for your business.

For instance, many e-commerce entrepreneurs have made a killing using the drop-shipping business model. Drop shippers can keep operational costs down typically by not handling inventory and logistics. During a recession however, this might not hold true.

Without having a direct handle on stock, any supply chain disruption can easily stump drop shippers who are forced to reassure customers, when in reality they are at the mercy of their suppliers.

Foreign exchange rates can seriously impact the cost of goods. Transportation also will likely be affected. Both typically result in erratic prices and lengthy fulfillment times. Drop shippers would have very little control over these circumstances and could end up with dissatisfied customers.

Anticipating these changes, such businesses can reconsider their model and shift to one that will be more capable of delivering value to customers. Drop shippers can move toward more conventional retail e-commerce where the business acquires, stores, and handles stock. This action may require more capital — and work — but provides control and minimizes uncertainties involved in the drop-shipping model.

From Sustenance to Success

Building business resilience is critical during tough times. Making some sacrifices and tightening the belt in some respects should help weather the negative effects of a recession. What’s important is for a business to sustain itself so that it can live to fight another day.

Despite all this gloomy talk, recessions do end. Surviving a recession should put you in a better position to prosper in a better economic environment. Also, on the upside, e-commerce penetration is still seen to continue its rise globally. Shoppers are expected to continue preferring buying goods online.

Should the trend hold, opportunities in your market, niche, or locality can emerge despite the challenging times. A recession may even provide a chance for tremendous growth. Preparing well in advance can put you in a prime position to jump on such opportunities to thrive.

Ralph Tkatchuk

Ralph Tkatchuk is Founder and Operator at TK DataSec Consultancy, where he specializes in e-commerce data protection and prevention.

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