What Are the Security Risks of Offshore Development? Countermeasures and How to Choose the Right Company

Offshore development offers attractive benefits such as securing development resources and reducing costs. However, many companies feel uneasy, wondering, “Can the same level of security measures as in Japan really be implemented?”

“I'm concerned about the security risks in offshore development.”
“I want to choose an offshore development company with minimal security risks.”

Among companies considering offshore development, many may share the concerns mentioned above. When considering offshore development, it is important to understand the potential security risks in advance.

This article explains in detail the security risks associated with offshore development. It also summarizes effective security measures and how to choose a reliable offshore development company in terms of security. If you are considering offshore development, please refer to this article.

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 refers to outsourcing system development to a company located overseas. The main objectives are cost reduction and addressing the shortage of IT personnel. In the past, China was the primary destination for offshore development. However, due to rising labor costs in China in recent years, more companies are outsourcing system development to countries such as Vietnam, India, and Myanmar.

Recently, the shortage of IT engineers in Japan has become a serious issue. Offshore development is gaining attention as a development option because it allows companies to utilize talented engineers from abroad.

Benefits of Offshore Development

There are two major benefits of offshore development.

The first is cost reduction compared to domestic development in Japan. Offshore development generally allows for lower labor costs compared to development in Japan. By securing talented engineers at lower costs, companies can reduce their overall development expenses.

The second is the ability to resolve the shortage of IT personnel. Some companies may not be able to proceed with their development projects due to a lack of engineers. By leveraging offshore development, companies can secure engineers suitable for their projects and achieve high-quality development.

In this way, offshore development has the advantage of simultaneously solving the dual challenges of cost reduction and securing talent.

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

Points to Note About Offshore Development

Offshore development offers many benefits, but there are also some important points to be aware of. The following summarizes each point of caution and how to address them.

Communication Gaps Due to Language and Cultural Differences

Differences in language and cultural background can lead to miscommunication. Holding regular video meetings, detailed documentation, and close cooperation with local staff are effective. It is also worth considering the use of a bridge SE who can act as a liaison with local engineers. In addition to language, differences in business customs also require attention.

Variation in Engineers’ Technical Skills

There may be variations in the technical skills of engineers in offshore locations. It is important not only to choose a highly skilled development company but also to verify the skills of individual engineers in advance.

Difficulties in Collaboration Due to Time Zone Differences

Time differences can make real-time communication challenging. You can address this by setting overlapping work hours or utilizing asynchronous communication tools. Additionally, regular progress reports and sharing detailed work records are effective.

Complexity of Budget Management Due to Exchange Rate Fluctuations

Exchange rate fluctuations can complicate budget management. A common countermeasure is hedging. Hedging involves fixing the exchange rate in advance to minimize losses from exchange rate fluctuations, enabling more stable budget management.

Political and Economic Instability in the Outsourcing Country

Political and economic instability in the outsourcing country can affect the project. Choosing a stable country is essential, and it is also worth considering risk mitigation strategies such as diversifying development bases across multiple countries or regions. Furthermore, it is important to prepare an emergency response plan in advance.

Security Risks in Offshore Development

Security risks require special attention in offshore development. When development takes place in different countries or cultural spheres, unexpected vulnerabilities may arise due to differences in security frameworks. Below are two major security risks to be aware of in offshore development.

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

Let’s explore each of these risks in detail.

Information Leakage Due to Low Security Awareness in the Outsourcing Country

In offshore development, differences in awareness and legal systems regarding security and intellectual property in the outsourcing country or region can pose risks. Security standards and practices that differ from Japan may lead to incidents involving leakage of confidential information or source code.

Especially since source code and confidential information are intangible assets, physical protection alone is not sufficient. Appropriate information security measures, such as access control and encryption, are essential. If these measures are lacking, the risk of information leakage increases. Additionally, low security awareness may lead to accidental data leaks by employees. The implementation of security training for all employees is also an important factor in risk assessment.

When considering offshore development, it is crucial to fully understand these security risks and thoroughly check the management system of the outsourcing partner. It is important to work closely with the partner to implement concrete measures to reduce risks.

Lack of Security Measures Due to Prioritizing Cost Reduction

In offshore development, overly prioritizing cost reduction can result in neglecting security measures. If the budget is set too low, even if you want to enhance the security level, you may not be able to implement appropriate measures due to lack of funds.

While cost reduction is an important aspect of offshore development, security measures should take higher priority. If a security incident occurs, it can lead to serious damage such as leakage of confidential information or system downtime. As a result, enormous costs may be incurred for post-incident responses.

In offshore development, it is crucial to carefully balance cost reduction with security measures. Security is one of the most important quality elements in system development. Taking a long-term perspective and investing appropriately in security measures will contribute to the success of offshore development.

5 Strategies to Enhance Security in Offshore Development

When considering offshore development, it's important to check the strategies used to enhance the security level of the outsourcing partner. Keep the following five strategies in mind when selecting a development partner.

1. Strengthening management through the adoption of a dedicated team (lab-type contract)
2. Establishing a highly secure development environment
3. Proper management of development PCs
4. Conducting regular security training

Let's break down each method in detail.

1. Strengthening Management through the Adoption of a Dedicated Team (Lab-type Contract)

To mitigate security risks in offshore development, adopting a lab-type contract can be effective. A lab-type contract refers to a development model where you secure a dedicated engineering team for a fixed period.

Because the development members are fixed in a lab-type contract, it becomes easier to monitor and manage them. Furthermore, having a consistent team helps maintain a high level of security awareness over time. Frequent member changes require repeated security training, but with a fixed team, this extra effort can be reduced.

2. Establishing a Highly Secure Development Environment

Improving security levels in offshore development requires setting up a secure development environment. Common measures include the following:

• Access control for office entry and exit
• Network security infrastructure
• Installation of security software
• Regular security checks

By combining these elements appropriately, you can protect information and guard against external threats. Specific implementations should be considered based on the project's scale, requirements, and the circumstances of the outsourcing partner.

3. Proper Management of Development PCs

Proper management of PCs used for system development is essential for effective security. Confirm how the development company manages their PCs. Typical considerations include:

• PC management system
• PC usage rules
• Policies on taking PCs outside the office

Select necessary measures depending on the project's size and nature, and work with the development company to implement them. However, overly strict restrictions may hinder efficiency, so it’s important to strike a balance between security and usability.

4. Conducting Regular Security Training

Improving the entire development team’s awareness of security is also crucial. Ask the development company about their employee training policies.

Specific initiatives may include security training for employees and updates on the latest security threats. These efforts contribute to a safer development environment.

Key Points to Check When Choosing an Offshore Development Company

When selecting an offshore development company, it is important to verify whether they have an appropriate security management system in place. Focus on the following four points to assess the company’s security risk.

• ISO/IEC 27001 certification
• Presence of subcontracting and its management system
• Frequency of personnel turnover
• Past security measures implemented

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

ISO/IEC 27001 Certification

ISO/IEC 27001 is an international standard for Information Security Management Systems (ISMS). Offshore development companies with this certification can be considered to have a certain level of security management in place.

Companies with ISO/IEC 27001 certification are expected to manage security systematically through established security policies and procedures, employee training, and regular audits. Since their employees are likely to have high security literacy, clients may also reduce the burden of implementing or enforcing security measures.

The status of ISO/IEC 27001 certification is an important indicator for objectively evaluating the security management level of an offshore development company. It’s advisable to confirm not only the presence of certification but also its scope and validity period.

Our company, Solashi, has also obtained ISO/IEC 27001 certification and carries out development work with rigorous security measures in place. If you are concerned about the security of offshore development, feel free to consult with Solashi.

Presence of Subcontracting and Management System

Offshore development companies may subcontract part of their work to other companies. This can potentially complicate security management. If subcontracting is involved, it is advisable to discuss the following points with the development company:

• How subcontractors are selected
• Security agreements with subcontractors
• Communication framework with subcontractors
• Response procedures when problems arise

Make sure the development company has clear policies on these matters. However, rather than strictly demanding all conditions, it’s better to check the necessary points based on the project’s scale and importance.

Frequency of Personnel Turnover

Be cautious with development companies that experience extreme personnel turnover. Frequent changes in personnel can lead to poor knowledge transfer and weak security awareness, potentially increasing the project's security risks.

However, there can be various reasons behind staff turnover. For example, in development companies that flexibly form teams depending on the project, frequent personnel changes are inevitable.

What’s important is the reason for personnel changes and how the development company handles them. It’s good to check the following points.

• The trends and background of personnel changes
• Training system for new members
• How project information is managed

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

Security Measures Implemented So Far

When choosing an offshore development company, it's important to check the security measures they have implemented in the past and those they can implement in the future. You may want to ask about the following points.

• Specific security measures implemented in past projects
• Standard security measures currently provided
• Additional security measures that can be implemented based on client requests

With this information, you can evaluate the company’s stance and flexibility toward security. It also helps you judge whether they can meet the required security level for your project. We recommend discussing and reviewing security measures that suit your project together with the development company.

Effective Security Measures for Offshore Development

To enhance the security level of offshore development, it is important for Japanese companies, as the outsourcing parties, to actively implement security measures. Here are four especially effective security measures in offshore development.

• Conclusion of contracts including security clauses
• Practicing close communication
• Checking security status using checklists
• Establishing a follow-up system in case of security incidents

Conclusion of Contracts Including Security Clauses

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

• Signing a Non-Disclosure Agreement (NDA)
• Sharing data handling policies
• Confirming communication procedures in case of security incidents
• Verifying implementation of basic security measures (e.g., installation of antivirus software)

Including these items in the contract helps establish a common understanding of security with the partner company and leads to a safer development environment. It’s important to select necessary items based on the project’s scale and nature and implement them within a manageable scope for both parties.

Practicing Close Communication

In offshore development, miscommunication is more likely due to differences in language and culture. If reporting and responding to a security incident is delayed, the damage may worsen. Therefore, it is important to maintain close communication with the outsourcing partner on a regular basis. Utilizing web conferencing and chat tools to regularly confirm the implementation status of security measures can be effective.

By strengthening communication, you can raise the partner's security awareness and promote the proper implementation of measures. It also allows early detection of potential issues and quick response. Building trust and promoting information sharing will lead to improved security levels.

Checking Security Status Using Checklists

Using a checklist is effective when verifying security measures. This allows both the outsourcing party and the partner to comprehensively share their understanding of security. Key verification items may include the following:

• Data protection methods (e.g., encryption)
• Access control mechanisms
• Status of security training
• Physical security measures

By checking these items, you can grasp an overview of the partner's security measures. If necessary, discuss the details with the partner and review the appropriate security measures for the project.

Establishing a Follow-Up System in Case of Security Incidents

In offshore development, responding to security incidents is a critical issue. It is advisable to check the following points with the development company:

• Basic policy for dealing with security incidents
• Communication procedures during an incident
• Frequency and method of data backups

By confirming these basic measures, you can be prepared for unforeseen events. Security is one of the key elements in a development project. Cooperate with your development company to implement appropriate countermeasures.

If You Feel Insecure About Offshore Development Security, Consult with "Solashi"

When considering offshore development, security risks are a major concern. In this article, we have thoroughly explained the security risks and countermeasures in offshore development, as well as how to choose a reliable offshore development company. Understanding risks unique to offshore development, such as differences in security awareness and lack of security measures due to cost priorities, and implementing appropriate measures is essential. It is also necessary to check the management system for re-outsourcing, personnel turnover, past performance, and whether ISO/IEC 27001 certification has been obtained to select a development company that can be trusted in terms of security.

If you feel insecure about these security aspects, please consult with "Solashi Co., Ltd". We are ISO/IEC 27001 certified, the international standard for Information Security Management Systems (ISMS), and we conduct our development operations with thorough security measures. We also have bridge system engineers who can communicate in multiple languages including Japanese, ensuring smooth communication.

With our extensive development experience and sincere approach to security, we propose optimal solutions tailored to your needs. If you feel uncertain about ensuring security in offshore development, please feel free 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."