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Offshore development offers attractive benefits such as securing development resources and reducing costs. However, many companies worry, "Can the same level of security measures be implemented as in Japan?"

"Concerned about security risks in offshore development"
"Want to choose an offshore development company with minimal security risks"

Some companies considering offshore development may have concerns like the above. It is important to understand the potential security risks in advance when considering offshore development.

This article explains in detail the security risks involved in offshore development. It also summarizes effective security measures for offshore development and how to choose a reliable offshore development company from a security standpoint. If you are considering offshore development, please refer to this guide.

Akira Shimazoe

CEO of Solashi Japan LLC. Engaged in the development and operation of internal systems at Suntory. Founded Yper Inc., serving as CTO and CPO, contributing to product launch and growth.

What is Offshore Development?

Offshore development means outsourcing system development to a foreign development company. The main objectives are cost reduction and addressing the shortage of IT personnel. Traditionally, China has been the primary outsourcing destination for offshore development. However, in recent years, due to rising labor costs in China, more companies have been outsourcing system development to countries like Vietnam, India, and Myanmar.

In Japan, the shortage of IT engineers has become a serious issue in recent years. Offshore development is gaining attention as an option for system development because it enables the use of talented overseas engineers.

Benefits of Offshore Development

There are two main benefits of offshore development.

The first is cost savings compared to developing in Japan. Offshore development tends to reduce labor costs compared to domestic development. By securing skilled engineers at lower costs, development expenses can be reduced.

The second is solving the shortage of IT personnel. Some companies are unable to proceed with development projects due to a lack of engineers. By utilizing offshore development, companies can secure suitable engineers for their projects and achieve high-quality development.

In this way, offshore development offers the dual benefits of cost reduction and talent acquisition.

Related article: 8 Reasons Why Vietnam is the Best for Offshore Development and How to Choose a Good Company - Solashi

Cautions for Offshore Development

While offshore development has many advantages, it is important to be aware of several cautions. Below are the main points and how to deal with them.

Communication gaps due to language and cultural differences

Differences in language and cultural background can lead to misunderstandings. Regular video meetings, detailed documentation, and close cooperation with local staff are effective. Consider using bridge engineers who can bridge the gap with local engineers. Also, be mindful of differences in business practices, not just language.

Variations in engineers' technical skills

There may be disparities in technical skills among engineers at offshore locations. It is important to select a development company with strong capabilities and to confirm the skills of individual engineers beforehand.

Difficulty in coordination due to time zone differences

Time zone differences can make real-time communication challenging. This can be addressed by setting overlapping work hours and using asynchronous communication tools. Regular progress reports and sharing detailed work records are also effective.

Budget management complexity due to currency fluctuations

Currency fluctuations may complicate budget management. Hedging transactions are commonly used to address this. Hedging involves fixing the exchange rate for transactions to minimize losses from fluctuations, enabling more stable budget management.

Political and economic instability of the outsourcing country

The political and economic instability of the outsourcing country may affect the project. In addition to choosing stable countries, risk diversification strategies such as distributing development bases across multiple countries or regions should be considered. It is also important to prepare emergency response plans in advance.

Security Risks in Offshore Development

Security risks require special attention in offshore development. Development in different countries and cultural regions may lead to unexpected vulnerabilities due to differing security systems. Below are two major security risks associated with offshore development.

1. Risk of information leaks due to differences in security awareness
2. Risk of insufficient security measures due to cost prioritization

Each risk is explained below.

Information Leaks Due to Low Security Awareness in the Outsourcing Country

In offshore development, differences in awareness and legal systems regarding security and intellectual property between countries and regions pose risks. Different security standards and practices from Japan may lead to leaks of confidential information or source code.

Especially since source code and confidential information are intangible assets, physical protection alone is not enough. Proper information security measures such as access control and encryption are essential, but if these are insufficient, the risk of information leakage increases. Low security awareness can also lead to data leaks due to employee carelessness. Whether all employees receive security training is a critical evaluation point.

When considering offshore development, it is essential to fully recognize these security risks and carefully check the management system of the outsourcing partner. It is important to work together with the outsourcing company to implement concrete measures to reduce risks.

Lack of Security Measures Due to Cost-Cutting Prioritization

In offshore development, overly focusing on cost reduction may lead to neglected security measures. If the budget is set too low, appropriate measures may not be taken due to insufficient funds, even if the intention is there.

While cost reduction is an important aspect of offshore development, security measures should be a higher priority. In the event of a security incident, the consequences could be severe, such as the leakage of confidential information or system outages. This could also result in significant costs for post-incident responses.

In offshore development, it is crucial to carefully assess the balance between cost reduction and security measures. Security is one of the key quality factors in system development. Taking a long-term view and investing appropriately in security measures will contribute to successful offshore development.

5 Measures to Enhance Offshore Development Security

When considering offshore development, it is important to review measures to enhance the security level of the outsourcing partner. Keep the following five measures in mind when selecting a partner.

1. Strengthen management system through dedicated team (lab-based contract)
2. Build a secure development environment
3. Proper management of development PCs
4. Conduct regular security training

Each method is explained below.

1. Strengthen Management System Through Dedicated Team (Lab-Based Contract)

To mitigate security risks in offshore development, adopting a contract type called a lab-based contract is effective. A lab-based contract allows companies to secure a dedicated team of engineers for a fixed period.

With lab-based contracts, the development team is fixed, making it easier to manage and keep track of members. Additionally, having a fixed team enables consistent reinforcement of security awareness over time. Frequent personnel changes require repeated security training, which can be...

By appropriately combining these elements, you can enhance information protection and counter external threats. It is important to consider specific implementation methods according to the project's scale, requirements, and the contractor's situation.

3. Proper Management of Development PCs

Properly managing development PCs is essential for implementing thorough security measures. Make sure to check how the development company manages their PCs. Generally, the following points are considered:

• Management system for development PCs
• Rules for PC usage
• Policy on taking PCs outside the company

Select necessary measures based on the project’s scale and nature, and work together with the development company to implement them. However, overly strict restrictions may reduce work efficiency, so it’s important to find a proper method by balancing security and convenience.

4. Regular Security Training

Measures to raise security awareness among the entire development team are also crucial. Ask the development company about their employee training policies.

Specific initiatives may include conducting security training for employees and providing updates on the latest security threats. These efforts will help realize a safer development environment.

Key Points to Check When Choosing an Offshore Development Company

When selecting an offshore development company, it is important to check whether they have an appropriate security management system. Focus on the following four points to carefully assess the company’s situation:

• Status of ISO/IEC 27001 certification
• Presence of subcontracting and its management system
• Frequency of personnel changes
• Security measures implemented so far

By checking these points, you can assess the security risks of an offshore development company.

Status of ISO/IEC 27001 Certification

ISO/IEC 27001 is an international standard for information security management systems (ISMS). An offshore development company with this certification can be considered to have a certain level of security management.

Companies certified with ISO/IEC 27001 are considered to systematically manage security through the establishment of security policies and manuals, employee training, and regular audits. As their employees are likely to have high security literacy, the client’s burden of implementing security measures and education may also be reduced.

The status of ISO/IEC 27001 certification is an important indicator for objectively evaluating the security management level of an offshore development company. We also recommend checking the certification's scope and expiration date, not just its existence.

At Solashi, we have obtained ISO/IEC 27001 certification and carry out development work with thorough security measures in place. If you have concerns about offshore development security, please feel free to consult with Solashi.

Presence of Subcontracting and Its Management System

Offshore development companies may subcontract part of their work to other companies. This can make security management more complex. If subcontracting is involved, it’s a good idea to discuss the following points with the development company:

• How the subcontractor is selected
• Security agreements with the subcontractor
• Communication system with the subcontractor
• Response methods in case of issues

Check whether the development company has well-defined policies for these aspects. However, you don’t need to strictly demand all points—verify only what's necessary based on the project's size and importance.

Frequency of Personnel Changes

Be cautious of development companies with excessively high personnel turnover. Frequent changes in personnel may hinder information transfer and the spread of security awareness, increasing project security risks.

However, there can be various reasons for personnel changes. For instance, companies that flexibly assemble teams according to each project may naturally have higher turnover.

What’s important is the reason for the changes and how the development company responds. Consider checking the following:

• Trends and background of personnel changes
• Training system for new members
• Method of managing project information

By checking these points, you can understand how the development company ensures project continuity and security.

Security Measures Implemented So Far

When selecting an offshore development company, it is important to confirm the security measures they have implemented in the past and those they are capable of implementing in the future. You may want to ask about the following points:

• Specific security measures implemented in past projects
• Security measures currently provided as standard
• Additional security initiatives that can be implemented upon client request

These details will help you evaluate the development company's attitude and flexibility regarding security. They also serve as a basis for determining whether the necessary level of security for your project can be ensured. We recommend discussing with the development company to jointly consider suitable security measures for the project.

Effective Security Measures for Offshore Development

To enhance the security level in offshore development, the commissioning Japanese companies also need to proactively implement security measures. Below are four particularly effective security measures for offshore development.

• Signing contracts that include security clauses
• Maintaining close communication
• Verifying security status using checklists
• Establishing a support system in case of security incidents

Signing Contracts that Include Security Clauses

Before starting an offshore development project, it is important to include basic data security agreements in the contract with the partner company. These may include the following items:

• Signing a Non-Disclosure Agreement (NDA)
• Sharing policies on data handling
• Establishing communication protocols in case of security incidents
• Verifying the implementation of basic security measures (such as antivirus software)

Including these items in the contract helps form a shared understanding of security with the partner company and contributes to building a secure development environment. It is important to select the necessary items based on the scale and nature of the project and implement them within a feasible range for both parties.

Maintaining Close Communication

In offshore development, miscommunication can easily occur due to language and cultural differences. If there is a delay in reporting or responding to a security incident, the damage may spread. Therefore, it is important to maintain close communication with the contractor on a daily basis. Utilizing web conferencing and chat tools to regularly check the status of security measures is effective.

Through consistent communication, you can raise the security awareness of the contractor and encourage appropriate measures. It also enables you to detect warning signs early and respond quickly. Building trust and promoting information sharing contribute to improving overall security levels.

Verifying Security Status Using Checklists

When checking security measures, using a checklist is effective. This ensures that both the client and the contractor share a thorough understanding of security-related matters. Key items to confirm include:

• Data protection methods (such as encryption)
• Access control mechanisms
• Implementation of security training
• Physical security measures

By verifying these items, you can get an overview of the contractor’s security efforts. When necessary, discuss the details with the contractor and consider security measures that suit the project.

Establishing a Support System in Case of Security Incidents

In offshore development, responding to security incidents is a critical issue. You should confirm the following points with the development company:

• Basic policy for responding to security incidents
• Communication protocols in case of an incident
• Frequency and method of data backups

By confirming these basic measures, you can prepare for emergencies. Security is one of the key elements of a development project. Work together with the development company to implement appropriate measures.

If You Have Security Concerns About Offshore Development, Contact "Solashi"

When considering offshore development, security risks are one of the major concerns. This article has explained in detail the security risks associated with offshore development, their countermeasures, and how to select a reliable offshore development company. It is essential to understand the unique risks of offshore development, such as differences in security awareness and insufficient measures due to cost priorities, and to take appropriate actions. It is also important to check the management system for subcontracting, personnel changes, past achievements, and ISO/IEC 27001 certification status to choose a development company you can trust in terms of security.

If you are feeling uneasy about these security aspects, please feel free to contact "Solashi Co., Ltd." We have acquired ISO/IEC 27001, the international standard for information security management systems (ISMS), and conduct development operations with thorough security measures. Our team includes bridge SEs who can communicate in multiple languages including Japanese, enabling smooth communication.

With extensive development experience and a sincere commitment to security, we offer optimal solutions tailored to your needs. If you are concerned about ensuring security in offshore development, please do not hesitate to contact us.

Akira Shimazoe

Representative of Solashi Japan LLC. Born in April 1989 in Fukuoka Prefecture. Graduated from the Graduate School of Information and Mathematical Sciences at Osaka Prefecture University. Joined Suntory System Technology Co., Ltd., an IT subsidiary of Suntory Holdings, in 2014. Broadly responsible for the development, operation, and implementation of vending machine delivery management, efficiency improvements, and sales management systems. Founded Yper Inc. in 2017, serving as CTO and CPO. Contributed to the launch and growth of the app-linked delivery bag "OKIPPA." Selected for Toyo Keizai's prestigious "Amazing Venture 100" and Forbes' "Forbes 30 Under 30 Asia 2019."