Contact us anytime to know more — Abhishek P., Founder & CFO CISIN
The importance of data protection increases for technology companies that work in different countries and focus on optimizing aspects of development using providers or partners.
It is much more complex than simply using an outsourced company. This also means that the companies contracted will receive more attention. Concerns include service delivery, consultation, planning, execution of projects, and handling sensitive data.
Onshore, offshore, and nearshore are all different types of outsourcing. Locations are chosen based on the current requirements of contractors.
Suppose, for example, the goal is to create a partnership with no cultural difference and prioritize geographical proximity. Onshore software development would be more appropriate as it is used for business within the country and allows better communication and quicker risk management.
Offshore is the best option if you want to hire companies in other countries and have a smooth workflow. Nearshore can be a good option: Hiring companies in countries with the same or similar time zones helps create cultural compatibility and lowers costs.
It is important to note that, as you move further away from your destination location, it becomes more critical that you better understand the laws governing data protection.
Dealing with cybersecurity is complicated due to the different rules for each country. Add this vision to a business that wants to expand to other countries. Imagine that you want to maintain or operate contracts in another country but cannot do so because of other laws.
The complexity of the laws, cultures, and legal jurisdictions must all be considered.
Due to data security and outsourcing issues, giving up on international expansion is not a good idea. This is true whether you are nearshore or offshore.
A good strategy will compensate for any risks taken, and good practices are the best way to avoid these roadblocks.
Remember that each party has contractual responsibilities to protect the customer's data. Respecting and applying laws that compete with the contract should be one of the most important points when forming the contract.
You must follow the contract to the letter. The fines and damage caused by a breach of information security can be substantial.
Where do you begin if, as a company, you intend to either outsource nearshore or offshore software development and maintain its credibility by paying attention to data protection? Start with these steps.
Learn about the culture and geography of regions you are considering outsourcing to.
- Invest in the right security equipment, certifications, and adaptations.
- Establish security committees.
- Cyber insurance is a good idea.
- Ensure your business can comply with the laws and regulations in the region you are outsourcing to.
Be aware that offshore and nearshore software development outsourcing are relatively new concepts with significant differences between the laws of different countries.
Although the laws of Brazil, GDPR, and the US overlap, there will be divergences. Divergences between the laws of Brazil, GDPR, and the US must be resolved individually according to good practices previously agreed upon by both parties.
The process has become more complex and time-consuming, but it is necessary for now.
Sufficient good practices will soon be available to resolve obstacles associated with nearshoring or offshoring while respecting each jurisdiction's laws.
Over time, new jurisdictions and interpretations are likely to emerge. The person who simplifies the process as quickly as possible will likely win.
We are a leading provider of IT Outsourcing Services. GDPR Compliance is a major concern for us. Our clients, mainly based in the EU, also find it a very important issue.
The Data Protection Regulation, which has been in effect since May 25, 2018, aims to unify data protection in Europe.
This article gives you a quick overview of the changes you need to know when considering outsourcing IT or software projects.
As IT projects and services often require the access and transfer of personal data, they may also be subjected to GDPR considerations.
This can mean IT experts working on such projects and their employers must have a European base. GDPR-compliant infrastructure and systems need to be set up carefully.
Understanding GDPR is important for organizations that work with IT companies, which often hire specialists from within and outside the EU.
These rules may limit who can be involved in their IT and software projects.
This article gives you a general understanding of GDPR and its conditions, which may affect your decision on an IT outsourcer.
It will also help you understand how they work. Our team has also compiled a list of frequently asked questions (FAQs) about software outsourcing and IT service providers.
This article contains more information on protecting your organization from potential GDPR violations by an IT outsourcer, such as a checklist to assess compliance.
It also includes what should be included in the service agreement, how compliance is monitored, and how to deal with a data breach if it occurs.
What is GDPR (General Data Protection Regulation)?
In March 2014, the European Parliament passed a data protection reform before replacing the 1995 Data Protection Directive 95/46/EC with the General Data Protection Regulation.
General Data Protection Regulations (GDPR) are now in effect for all EU companies that collect, store, or otherwise process the personal data of EU citizens.
What is the impact of GDPR on my business?
According to the General Data Protection Regulation, companies must control how their data is used and stored more closely.
This aims to safeguard the privacy rights of all individuals in the European Union. It is important to audit IT systems, processes, and software for compliance with GDPR. You can start by taking the following steps as an organization:
- All employees should be informed about GDPR.
- Train your staff regularly on the GDPR framework, and make sure they are all aware.
This includes employees working from home.
- Document/assess the personal information you have.
- If necessary, organize a data audit.
- Review the GDPR/processes to avoid fines.
What is Personal data?
Personal Data is any information that relates to a natural person who can be identified. Name, phone number, location information, and online identifiers like IP addresses and cookies are all examples of "Personal Data." Personal data "sensitive" includes ethnicity, religious or political beliefs, memberships, or biometric data.
Information that identifies an individual.
IT Outsourcing: Data Protection for IT Service Providers
In the internal IT system of a business, information such as employee data, client data, and confidential or personal data are often kept.
IT contractors often have access. Personal data, such as customer or employee data, is often affected as soon as access to IT infrastructure is given to a software development firm.
Even if the company that provides IT services processes data in its cloud or on its servers, it must adhere to the GDPR obligations.
It is important to clarify the framework and requirements of GDPR compliance with software developers. What are the most important questions?
- Who is responsible for GDPR compliance?
- Is the data stored within or outside of the EU?
1. Outsourcing IT: Who's responsible for GDPR?
In order to ensure GDPR compliance, the "responsible" party is defined as the individual, organization, or institution that determines the purposes and methods of data processing.
It is important to clarify whether the processing of personal data has been commissioned or if there's a joint responsibility between IT service providers and themselves.
In the case of commission processing, the service provider is considered a client's supporter. The project sponsor is responsible for GDPR compliance.
A processing order agreement is now required. This agreement stipulates that the IT provider appointed to work on the software development project may only access data to achieve a certain purpose and according to the instructions given by the client.
If the provider breaks this rule, then he is fully responsible.
If there is a joint-responsibility agreement, the outsourcer must comply with the GDPR just as much as the client who commissions the project.
This also requires a legal base since the client's consent is insufficient. Both parties must take into consideration the rights of data subjects, as well as define clearly who's responsible.
It is vital to understand that whether a third party is developing the project or is part of a collaborative effort, compliance remains primarily based on joint efforts.
Therefore, you should review the company's tools, processes, and expertise and implement changes in response to the findings.
2. The EU Outsources Data Processing
The location of the experts and outsourcing providers working on your project is very important. Collaboration is easy if the company developing software is in the EU.
When a large amount of work is done remotely, monitoring the responsible parties, contractors, and employees who are not on-site can be hard. However, data protection and security must still be taken care of. This applies to all employees who process or store data, regardless of their geographic location.
The recipient (the IT service provider) must meet specific requirements for data transfer to third countries if they are outside of the EU.
The data can then be sent to a third country outside the EU. However, these third-country countries must offer sufficient protection for data that the European Commission has deemed.
If this does not happen, then adequate data protection is required.
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How can businesses avoid fines?
It is important to consider GDPR during the planning stage of the project. A partner with experience in IT services and an understanding of GDPR and its rules will also be a valuable asset.
It is important to consider this, especially in light of the fines that can reach up to 20,000,000 euros for a grave GDPR violation.
In this year's case, "CAIXABANK SA" was found guilty of violating Articles 6, 13, and 14 GDPR for "transferring personal data without consent." The company had to pay an incredible 6 million euro fine.
Businesses must be GDPR compliant and take data security seriously.
The company must obtain the consent of all individuals for data storage and transfer. Professional legal advice should be sought on the entire handling of all data.
The GDPR is being enforced more strictly by the data protection authorities. You should avoid data security mistakes even when outsourcing custom software development services by only working with IT service providers with sufficient (legal) data privacy expertise.
What Does GDPR Mean For Outsourcing Services And Companies?
The GDPR defines the roles of the data controller and processor. Processors are responsible for processing personal data under the direction of the controller.
Data processors are outsourcing service providers, and data controllers are companies who outsource.
In the present scenario, GDPR-compliant service providers can only process data on EU citizens, regardless of where they are located or what type of services they provide (whether it is employee relocation or product development).
Both data controllers and data processors can face fines of up to EUR20 or 4% (whichever is higher) of the company's global turnover for the previous financial year if they fail to comply with GDPR.
To align with GDPR standards, outsourcing firms that want to do business with EU companies must strengthen their privacy and data security policies.
The GDPR changed the relationship of EU companies with outsourcing service providers.
A company based in the EU may need CRM software to manage its European clients. The GDPR allows a company to outsource software development to an Indian outsourcing firm.
However, the provider must adhere to a certain set of requirements. The obligations must include the data handling practices and security measures the provider should follow to comply with GDPR.
The company and the outsourcer can be penalized severely during a data breach. The company (data controller) and outsourcing services provider (data processor) must adhere to all guidelines set forth by the General Data Protection Regulation.
Read More: What is The Difference Between Onshore and Offshore Software Development?
How Outsourcing Services Can Help A Service Provider Become GDPR Compliant
Your firm must comply with GDPR to handle data from individuals in the European Union. Following these steps will help you to become fully GDPR compliant.
Learn What GDPR Is: The more you understand GDPR, its impact on your company, and how to handle it, the easier you'll be able to deal with the situation.
You should first identify the business processes that need to be changed for you to achieve full compliance with GDPR. You should train all your staff if you are running a large outsourcing company. This will ensure that every employee in the organization is aware of GDPR.
Examine Your Technologies and Business Processes. Review your processes to see where you fall short of the GDPR standard.
Hire specialists if necessary and adopt new processes to ensure you can meet GDPR standards. Check out the technology that is being used in your company. These technologies should meet the requirements of the GDPR for data privacy and security.
Suppose you're a web development company that deals with personal data from Europeans who visit your client's site.
In that case, you need to ensure that the data you handle is protected so there can be no breach. Fix any gaps in your technology or processes as soon as possible.
In order to comply with the GDPR, the European nations have set up data protection associations. These associations were set up to enforce the GDPR and monitor compliance.
Create a data registry that records all data processing activity. In the event of a breach, the Association for data protection will require you to present the register.
Create A Data Security Map: Using a roadmap to organize your data helps IT service providers prioritize where security risks exist and set goals.
Data security techniques like encrypting, pseudonymization, etc. Outsourcing firms can achieve their security objectives using data encryption, pseudonymization, and other techniques.
Conduct periodic assessments: After implementing and testing the technologies and processes to become fully compliant, the next step will be to conduct periodic evaluations for everything to work properly.
Data management and security will prevent data breaches and save you heavy fines for non-compliance with GDPR.
Since the General Data Protection Regulation is in force, IT outsourcing companies that work with data belonging to European Union citizens in India are now strictly following the GDPR requirements.
India is a great place to outsource because it provides data security and ensures that European customers receive high-quality services and products on time.
General Data Security Considerations
Companies of all sizes, in every industry, and with varying levels of complexity are increasingly outsourcing. If done correctly, outsourcing can result in dramatic savings on costs and improvements to efficiency.
The companies can access external talent in the home country or overseas. Outsourcing, traditionally reserved for call centers and manufacturing, can now be applied to any type of business activity, including software development, human resources, or even marketing.
A professionally executed outsourcing strategy can be a great asset to businesses. Outsourcing key business processes to an external partner is not without risk.
Businesses must choose partners who adhere to the same security standards as themselves. ISO standards are a good example, as is HIPAA in the healthcare industry and PCI (Payment Card Industry) for fintech and online retail.
Data Security for a Distributed Workforce
The trend of distributed teams is increasing. COVID-19 has accelerated the rate at which companies move from full in-house teams to partial or full remote collaboration.
It is particularly true in the software-outsourcing industry. Companies in the US are very familiar with hiring partners from Latin America, while companies based in Europe hire collaborators from Eastern Europe and even Asia.
Before the distribution of work, all security was done in-house. Access policies, cameras, and badges are some of the surveillance methods.
The security practices must be adjusted to the realities of distributed teams working remotely or from home. It is mandatory to use a corporate VPN. The traffic entering and leaving company servers must be encrypted. On team members' devices, security policies must be implemented or enforced.
For example, the company could implement disk encryption if a laptop is lost or stolen.
Identity management is another issue. Okta, a centralized platform that helps businesses control and centralized user access across all platforms and tools, can be a great solution.
When a legacy system is exposed to the Internet with poor login procedures, it can lead to many security breaches.
A centralized login for each tool or platform is a great way to minimize these risks. Outsourcing partners should meet these requirements.
Microsoft CEO's statement is correct. Every company has to be concerned about software security. From a data-protection perspective, this translates to data handling protocols and data security.
But both the companies and their outsourcing partners must not forget about human factors when adhering to these rules.
The technical and compliance aspects of the relationship between the provider and consumer must be considered when choosing an outsourcing partner.
Read More: IT firms choose multi-shore delivery to meet client needs
Data Security and Business Impact
Data has strategic value for businesses. Many companies are still unaware of the serious consequences of a data breach, ranging from ruined user confidence and public relations nightmares to the loss of their business.
Outsourcing cyber security services should be its top concern if a business collects, analyzes, and stores user data.
It is particularly important if an outsourced partner handles the software or stores or collects the data. Suppose a company's software or data provider is not up to the standards of the business. In that case, it can pose a serious security threat.
Outsourcing is a great way to save money, but companies shouldn't stop using it to achieve their goals. Selecting a partner who will treat their data with care is important.
A company's outsourcing partner should be audited as necessary since processes outside the organization are inherently less controlled.
Note on Data Annotation Projects
Machine Learning products and Artificial Intelligence are becoming more popular. In line with this trend, companies often outsource their machine learning software that collects user data and corporate information.
When outsourcing sensitive data projects, businesses should take extra care and follow best practices.
Legal departments should be included in the contracting process to ensure it clearly outlines how ownership of data and related responsibilities within an outsourcing relationship will operate.
DevOps and cloud operations are two approaches that have made significant gains in the efficiency of software development.
However, for data-critical projects, the roles with access to sensitive information must be designed correctly and legally.
For this kind of project, it could be beneficial to engage an independent third-party auditing company on which both the outsourcing partner and client can depend.
What does ISO 27001 have to do with Data Security?
ISO 27001 is an international information security standard. The standard outlines the processes that a business should implement to maintain an Information Security Management System (ISMS).
ISMSs are designed to address the fact that, while many companies implement some level of security control, it is rarely done systematically and centrally.
Most companies have policies relating to passwords, access control, and security, but they are primarily point solutions rather than an organic, general approach.
ISO/IEC 27001 requires companies to:
- Examine security threats and their impacts in a systematic way
- Use a suite of comprehensive controls to combat said threats.
- Ensure that the information security control measures are always up-to-standard.
ISO 27001, however, is part of the larger family of 27000 Standards. They include guidelines on how to implement and audit an ISMS.
IT Governance, cloud computing, etc.
What is the ISO 27001 standard?
The question arises when companies decide the scope of ISMS and how they will treat service providers. To gain greater control, some businesses place service providers under their ISMS system.
For simplicity's sake, some businesses do not include third-party service providers in their ISMS systems.
An organization may exclude a party from its ISMS only if the direct risks from this party are not manageable. Standard specialists and auditors should analyze each case and determine the appropriateness of excluding a third party.
A company's ISMS should include all reasonable methods of evaluating and monitoring third parties to verify that they are meeting the standards set by their organization and that acceptable practices have been implemented.
Although a company is unlikely to be held responsible for the physical security of a service provider located overseas, it should monitor and evaluate that contractors adhere to security standards, including using a VPN or not using personal devices when handling company data.
The ISMS should keep evidence of the evaluation and monitoring for an external audit, as with ISO standards.
How To Audit Outsourcing Providers
An audit of a service provider is possible and recommended by a company following ISO 27001. Three basic audit types exist: audits by a first party, audits by a second party, and audits conducted on behalf of a third party.
The different types of audits are described below.
- This type of audit is also known as an "internal audit." An employee of the company audits ISMS.
- This is when an audit of a vendor by a business takes place.
It is a type of audit that a company can use to check the work done by an external software developer.
- Audit by a third party: This type of audit is performed when an organization decides to follow international standards, such as ISO, and engages a firm to audit them.
The company that hires an outsourced development partner can perform a second-party audit on them.
In the contract that establishes the relationship, the right and scope of an audit should be stated clearly. Otherwise, there could be legal obstacles or liabilities.
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Wrapping Up
Data security is a must for all companies, whether they are working in-house exclusively or outsourcing. When a business hires an outside partner to help with its software development process, it should ensure that this person meets the same standards as the company.
The ISO/IEC27000 standard family, in particular, establishes rules for designing and maintaining an Information Security Management System (ISMS).
Companies should plan carefully when working with suppliers externally, including how they will audit the providers and how and where to store and produce evidence.
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