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Managing Risk
and Security in
Outsourcing
IT Services
Onshore, Offshore and the Cloud

Frank Siepmann,
CISM, CISSP, ISSAP, NSA-IAM, NSA-IEM
Managing Risk
and Security in
Outsourcing
IT Services
Onshore, Offshore and the Cloud
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Managing Risk
and Security in
Outsourcing
IT Services
Onshore, Offshore and the Cloud

Frank Siepmann,
CISM, CISSP, ISSAP, NSA-IAM, NSA-IEM
CRC Press
Taylor & Francis Group
6000 Broken Sound Parkway NW, Suite 300
Boca Raton, FL 33487-2742
© 2014 by Taylor & Francis Group, LLC
CRC Press is an imprint of Taylor & Francis Group, an Informa business

No claim to original U.S. Government works

Version Date: 20131023

International Standard Book Number-13: 978-1-4398-7910-8 (eBook - PDF)

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Contents

Fo re wo rd xi
P r e fa c e xiii
Acknowledgments xvii

C h a p t e r 1 O u t s o u r c i n g 1
History of Outsourcing 1
Early Days of Outsourcing 2
Current State 3
Delivery Models 3
Onshoring 3
Nearshoring 3
Offshoring 3
Outsourcing Types 4
Technology Outsourcing 4
Business Process Outsourcing 4
Business Transformation Outsourcing 5
Knowledge Process Outsourcing 5
Internals of Outsourcing 5
Phases 5
Typical Financial Outsourcing Model 6
Geographical Regions 7
Top Outsourcing Countries 8
India 9
Indonesia 14
Estonia 16
Singapore 17
China 20

© 2010 Taylor & Francis Group, LLC v

vi C o n t en t s

Bulgaria 26
Philippines 31
Thailand 35
Lithuania 40
Malaysia 43
Outsourcing Personnel 46
Consulting Personnel 46
Former Employees of Clients 47
Internal Resources 47
Third-Party Personnel 47
Hired Personnel 48
Teams 49
Salaries 52
Growth Strategies 53

C h a p t e r 2 Th e C l o u d 55
Software as a Service (SaaS) 55
Platform as a Service (PaaS) 56
Infrastructure as a Service (IaaS) 57
Private Cloud 57
Community Cloud 58
Public Cloud 58
Hybrid Clouds 60
What the Cloud Is and Is Not 61
Beyond the Cloud 62
Virtual Private Cloud 64
Standardization between CSPs 64
Compliance in the Cloud 65
Security and Privacy Issues with Cloud Computing 65
Scalability versus Elasticity 65
On-Demand Self-Service 66
Rapid Elasticity 66
Resource Pooling 67
Outages 68
Denial of Service 68
Virtualization Security 68
Metering 69
Hypervisor Security 69
Virtual Networks 70
Memory Allocation/Wiping 70
Cloud Network Configuration 71
Firewalls in the Cloud 73
Self-Service 75
Malicious Insiders 77
Availability and Service Level Agreements 77
Authentication, Authorization, Accounting 80
Tenant Credibility 81

© 2010 Taylor & Francis Group, LLC

 C o n t en t s vii

Address the Cloud Security/Privacy Dilemma 82

SAS-70, SOC 1, and SOC 2 Audits 82
Cryptography and the Cloud 83
Encryption Keys and the Cloud 84
Third-Party Cloud Security Providers 85
FedRAMP and the Federal Cloud 86
How to Securely Move to the Cloud 86

Chapter 3 B e f o r e Yo u D e c i d e to Outsource 89
Security and Privacy Impacts 89
Secure Communication 90
Telephones 91
e-Mail 93
Mobile/Cell Phones 94
Smartphones 95
BlackBerrys 96
Instant Messenger 96
Letters and Parcels 98
Organizational Impacts 99
Legal Aspects 99
Personnel Issues 99
Technical Challenges 100
Network Address Translation (NAT) Issues 100
Single Sign-On and Federation (SAML/XACML) 100
Backup Technologies 101
Remote Desktop Support 101
Trouble Ticket Systems 101
Business Continuity 102

C h a p t e r 4 R e a dy to Outsource 105
Perfect Outsourcing Company 105
Doing Your Homework 105
Understand What Is Offered 110
Audit Reports 110
Is Business Transformation Outsourcing the Right Choice? 114
Ask the Right Questions 115
Dedicated Resources or Not? 115
Talking with Existing Clients 116
What Matters for the Outsourcing Company? 117
Challenges Outsourcing Companies Face 118
Which Security Controls—Ours or Theirs? 119
Staff Augmentation 119
Complete Outsourced Operation 119
Cost Savings 120
Security Controls 121
Next Step—Clean House 126
Maturity Level 126

© 2010 Taylor & Francis Group, LLC

viii C o n t en t s

Alignment of Strategies 127

Transforming 127
Outsourcing Preparation 128
Information Security Policy 128
Organization of Information Security 129
External Parties’ Security 130
Information Classification Security 131
Prior to Employment Security 131
During Employment Security 132
Termination or Change-of-Employment Security 132
Secure Areas Security 133
Equipment Security 134
Operational Procedures and Responsibility Security 137
Third-Party Service Delivery Management Security 137
System Planning and Acceptance Security 138
Protection against Malicious and Mobile Code Security 139
Information Backup Security 140
Network Security Management Security 140
Media-Handling Security 141
Exchange of Information Security 142
Electronic Commerce Services Security 144
Monitoring Security 145
Business Requirement for Access Control Security 148
User Access Management Security 148
User Responsibilities Security 150
Network Access Control Security 151
Operating System Access Control Security 154
Application and Information Access Control Security 156
Mobile Computing and Teleworking Security 158
Security Requirements of Information Systems 159
Correct Processing in Applications Security 161
Cryptographic Controls Security 162
Security of System Files 163
Security in Development and Support Services 164
Technical Vulnerability Management Security 166
Reporting Information Security Events and Weaknesses
Security 167
Management of Information Security Incidents and
Improvements Security 169
Information Security Aspects of Business Continuity
Management 171
Compliance with Legal Requirements Security 173
Information Systems Audit Considerations Security 178
Outsourcing Security Readiness Assessment 180
Tactical Goals—Now or Later? 182
Strategic Objectives—When? 182

© 2010 Taylor & Francis Group, LLC

 C o n t en t s ix

C h a p t e r 5 D ay O n e and B e yo n d 185
Enabling the Outsourcing Company 188
Access to Required Information 188
Documentation 189
Personnel 189
Transition Phase 190
The Stable Years 191
Security Incidents 191
Outsourcing Personnel Turnover 192
Regular Activities 193
Reporting 195

C h a p t e r 6 W h e n W e Pa r t 199
How to Prepare 200
The Contract 200
Analysis of What Needs to Be Done 201
Exit Plan 201
When the Day Comes 202
Taking Control 203

C h a p t e r 7 O u t s o u r c i n g A n e c d o t e s 205
British Health Records 205
Transportation Strike in Bangalore 206
Submarine Cable Cuts 206
Cloud Outages 207
T-Mobile: Sidekick in Danger of the Microsoft Cloud 207
Outages at Amazon Are Sometimes due to “Gossip” 207
Google Services Impacted by Cloud Outages 208
Microsoft’s Azure and Hotmail 208
Salesforce.com’s Cloud Goes Down 208
CloudFlare DDoS 208
Background Investigation Lacking 209
Privacy Laws—Not Here 209
Can You Hear Me Now? CDMA Limitations 209
Overlooked 210
Premature Transformation 210
Public Instant Messenger—Share the Joy 210

© 2010 Taylor & Francis Group, LLC

Foreword

I think that Frank does a great job of discussing outsourcing and his
insights for areas to watch out for. He is dead-on with many of his
observations, having been working with outsourced environments
myself for a number of years. I appreciate his frank observations (par-
don the pun!) and direct style in approaching the issues—in other
words, he calls them as he sees them. The information on the differ-
ent countries, albeit somewhat lengthy, provides a great perspective as
to what is going on in the world and why it is so important to know
who and what country you are dealing with. I also like the way that
he moves into the cloud from outsourcing and shows the similarities.
The latter section describing the controls, comments, and questions
mapped to ISO27002-type requirements is very good as well. I also
like the way that the book finished up with anecdotes to illustrate that
these issues are real.

—Todd Fitzgerald
Global Information Security Director
Grant Thornton International, Ltd.

© 2010 Taylor & Francis Group, LLC xi

Preface

Since the early 1990s, outsourcing has had a large influence on vari-
ous industries in the Western world. Outsourcing companies have
attracted industry giants such as Ford, GE, and Siemens, just to
name a few, with promises of better expertise and significant cost
savings. Now approximately 20 years later, not all of those promises
have been kept. Organizations have learned their lessons—outsourc-
ing is not a silver bullet. Some political and economic dynamics have
resulted in a shift in how outsourcing is perceived. One of the areas
of concern with many outsourcing customers is the level of security
and privacy of their data. Now with cloud computing becoming a
standard in modern IT environments, the picture has become even
fuzzier. Many security experts are raising the flag regarding security
and privacy in outsourced cloud environments. This book was writ-
ten with the intent to help the manager who is challenged with an
outsourcing situation, whether preparing for it, living it day to day, or
being tasked to safely bring back information systems to the organiza-
tion. It provides guidance on how to ensure that security and privacy
can be achieved during an outsourcing situation. I have worked in the
consulting and outsourcing industry for more than 15 years, leading
medium- to large-sized security organizations and teams. I learned
over the years that many risks can be addressed when there is a much
broader understanding of a situation than just the technical aspects.

© 2010 Taylor & Francis Group, LLC x iii

xiv P refac e

Many factors can play into the success or failure of an outsourcing

initiative. This book provides not only the technical background but
also some broad information about outsourcing and its mechanics.
Organizations sometimes try to resolve their issues of an expensive,
fragmented IT infrastructure by looking into outsourcing. If this is
truly a valid strategy, then it is heavily relying on circumstances and
individual factors specific to that organization. Yet there are some
common pitfalls that should be kept in mind before jumping to the
conclusion that outsourcing will provide cost savings and a smoother-
running operation. One critical factor for a smooth-running IT oper-
ation is a governance framework, resulting in mature processes, an
executable IT strategy, and an IT environment that is maintainable.
Most organizations that lack mature processes have to support an IT
environment that ranges from Windows to three different UNIX fla-
vors. Those environments are usually not sustainable in the long run,
outsourced or not. To believe that outsourcing such an environment
would result in cost savings and better performance can very quickly
turn into a big disappointment. Yes, a large outsourcing company
will certainly have the resources to support the various platforms and
technologies. However, the more individuals an outsourcing company
needs to provide to support a customer’s environment, the higher the
cost will be. Labor cost is the expensive part of the outsourcing equa-
tion, even delivered from low-cost countries like India and China.
The leading outsourcing countries in particular have a common trend:
the cost of living is rising, resulting in higher labor costs, making cost
savings a short-lived dream.
That cost savings and security traditionally do not go hand in hand
should be no surprise to anyone. Let’s be clear: cost savings can be
achieved in outsourcing if security is done right. However, the typi-
cal large-scale outsourcing engagement does not have security as the
primary objective, but cost savings.

Definitions

This book uses for the purpose of standardization, whenever available,

the definitions set by the US National Institute for Standards (NIST).
Particularly in the fast-moving market of outsourcing, companies
have come up with their proprietary marketing terminology, trying
© 2010 Taylor & Francis Group, LLC
 P refac e xv

to distinguish themselves from their competitors. Looking under the

“hood” of such proprietary offerings, they usually are easily tied back
to the NIST definitions and standard industry terminologies.

© 2010 Taylor & Francis Group, LLC

Acknowledgments

I thank my family, friends, and former colleagues who have helped me

to create this book.

© 2010 Taylor & Francis Group, LLC x vii

 1
O utsourcin g

A precise definition of outsourcing has yet to be agreed upon. Thus, the

term is used inconsistently across the industry. However, outsourcing
is often viewed as involving the contracting out of a business func-
tion—commonly one previously performed in-house—to an external
provider. In this sense, two organizations may enter into a contractual
agreement involving an exchange of services and payments and it is
called outsourcing.

History of Outsourcing

Nowadays there is a large number of outsourcing companies, ranging

from small, employing a handful of people, to huge, employing some-
times more than 200,000 people. Whoever does business with a small
outsourcing company has it easier in determining what they are dealing
with than those doing business with the larger outsourcing companies.
Most of them will have a large sales force that will make sure to paint
the “right” picture of their services; however, it might not be a realistic
picture. So what are some of the factors that can help to determine if
an outsourcing company is the right one for the job? The history of a
company can usually provide some pointers of its ability to operate the
outsourced environment and if it has the right personnel to protect the
valuable information that you entrust it with. Companies with large
organic growth are usually a success story that is supported by satisfied
clients and a workforce that brings the talent that you might be lack-
ing in your own company. On the other hand are companies that have
investors with deep pockets, supporting growth by acquisitions. This by
itself is not bad; however, mergers and acquisitions are the reason that
many organizations have underperformed or failed.* A half-integrated

* In 1997 a KPMG study referenced in The Economist (How mergers go wrong, July
20, 2000) showed that most postmerger companies underperformed.

© 2010 Taylor & Francis Group, LLC 1

2 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

organization can be more of a burden than a blessing. Due to the recent

trend of insourcing, the market for outsourcing has seen smaller growth
rates, resulting in takeovers and mergers. However, those new orga-
nizations lack in some cases the type of management that is required
to successfully integrate the two companies—i.e., to achieve synergy
between the entities of the new organization. Anyone who has worked
for a small company and then for one of the larger companies knows the
differences: in the smaller companies that lack specialists you find the
“I do it all” mentality. The larger organizations, however, have adopted
the “bring in the specialist” mentality, usually achieving better results.
If a small company does not change its mentality as it grows, it will not
perform well internally nor be able to provide the best service to its cli-
ents. Doing your research before making a decision on which company
to use for outsourcing can result in a successful partnership instead of
mediocre service that will cost you more in the end.

Early Days of Outsourcing

Outsourcing is nothing new, but it might have had a different name

(outsourcing became the term for this in 1989; Mullins, 1996*). The
concept of having another company to provide services for cost sav-
ings can be traced back to the 1950s and 1960s. Companies started
moving away from the traditional model of the large integrated com-
pany that owns, manages, and directly controls its assets. In those
years until maybe the 1990s, companies mainly used outsourcing as a
tool to address skill needs that were not available within an organiza-
tion. For example, publishers often used “outsourcing companies” for
composition, printing, and fulfillment services. In the 1990s orga-
nizations began focusing more on cost saving measures by outsourc-
ing functions that were necessary to run the company but not part of
the core business. As the need for cost savings has increased over the
recent years, more and more processes that are critical to an organiza-
tion have been outsourced.

* Mullins, Rick. 1996. Managing the Outsourced Enterprise. Journal of Business

Strategy, 17(4): 28–36.

© 2010 Taylor & Francis Group, LLC

 O u t s o ur cin g 3

Current State

In recent years since the late 1990s, there has been no general rule of
how organizations handle outsourcing. There has been a general trend
of outsourcing core processes (e.g., human resources) to outsourcing
organizations. However, other organizations did a 180-degree turn
and are bringing everything back in-house, minimizing the depen-
dency on third parties. One of the key differentiators between the
two groups of organizations is the agility of their business. Another
is how leadership in an organization feels about their need to address
challenges like repositioning the organization in the market place.

Delivery Models

The outsourcing industry has developed numerous delivery models,

allowing for cost savings and attracting talent for low salaries in locations
that have the necessary infrastructure to run an outsourcing operation.

Onshoring

Onshoring is often, wrongfully, defined as an overseas investment by

a domestic company (or overseas affiliate) that is subsequently rein-
vested back into the domestic marketplace. In reality, onshoring has
a broader definition and is actually defined as any direct investment
into the domestic marketplace by a domestic company.

Nearshoring

Nearshoring and onshoring are very similar. The difference is that the
investment does not necessarily go back into the domestic market but
rather to a neighboring country (e.g., Mexico or Canada for US-based
companies). With European countries this could mean that the invest-
ment takes place in the E.U. marketplace but not in the same country.

Offshoring

Offshoring describes the relocation of a business process from one

country to another that is not necessarily a directly neighboring
© 2010 Taylor & Francis Group, LLC
4 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

country (see “Nearshoring”). Offshoring has made up a large portion

of today’s outsourcing business models, achieving significant cost sav-
ings due to cheap labor in those outsourcing destinations.

Outsourcing Types

The outsourcing industry has been reinvented for decades. The lat-
est invention is cloud services that have relabeled traditional services
(e.g., Software as a Service being a prime example—now a cloud ser-
vice model) to attract clients. Today there are two major outsourcing
types: technology outsourcing and business process outsourcing. To reflect
the variety in today’s outsourcing offerings, some of the other out-
sourcing types are mentioned below.

Technology Outsourcing

Technology outsourcing (TO) is the older of the two main outsourc-

ing types. It allows a client to use the technical capabilities of an
outsourcing company for its purposes. Clients do not require the com-
puting power in-house anymore; instead, the outsourcing company
provides its IT systems and shares them across many clients so that a
required dedicated solution can be provided to a client.

Business Process Outsourcing

Business process outsourcing (BPO) allows an organization to out-

source complete business functions instead of just technology. An
outsourcing company offering BPO can provide services like human
resources to a client so that the client does not need to invest in skilled
personnel and office space. BPO usually involves business processes
that are outside the core competency of a company. However, there
has been a trend to also outsource more and more core business pro-
cesses. Models like Software as a Service (SaaS) provide the foun-
dation for companies like Salesforce.com to offer fully automated
solutions in the BPO space, making them great examples for business
process outsourcing.
© 2010 Taylor & Francis Group, LLC
 O u t s o ur cin g 5

Business Transformation Outsourcing

Business transformation outsourcing (BTO) came up in the new mil-

lennium with some of the big players like IBM and Accenture offer-
ing BTO deals. Large organizations such as AT&T bought into these
“co-sourcing” approaches. While not an actual joint venture, the nor-
mal structure for BTO deals aims to reward outsourcing companies for
delivering ongoing innovation and cost savings. The new organization is
usually a mix of both the client and outsourcing companies’ personnel,
having its own pro forma profit and loss and profit-sharing provisions.

Knowledge Process Outsourcing

Knowledge process outsourcing (KPO) is the fourth type of outsourc-

ing that is becoming more common. It usually involves advanced
research, analytical, and technical skills on the outsourcing company’s
side. The pharmaceutical research and development companies are
great examples of an industry that makes use of this type of outsourc-
ing. An example outside the pharmaceutical space is Motorola, which
had the operating system for their famous Razr phone developed by
a Brazilian company. This type of outsourcing usually involves short-
term and peripheral projects.

The Internals of Outsourcing

Obviously there is not one operating model that maps to all outsourc-
ing companies. However, there are similarities between the various
outsourcing companies that are a result of their history and the drive
to deliver cost-efficient services to their clientele.

The Phases

Outsourcing deals usually follow a six-phase life cycle:

1. Strategy—A company makes the strategic decision to out-
source some or all of its IT or business operation.
2. Selection—The company starts a high-level selection on which
outsourcing companies potentially could provide the services
that are in scope for the outsourcing initiative. At a later state
© 2010 Taylor & Francis Group, LLC
6 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

of this phase a selection is made and an outsourcing company

is chosen.
3. Negotiation—In this phase the negotiations start between
the two companies. The outsourcing company might request
additional information or send personnel to gather a first set
of information to prepare for the implementation phase.
4. Implementation—During this phase the transitioning activi-
ties start in preparing for day one of the outsourcing opera-
tion. Usually the outsourcing company conducts interviews
with client personnel, gathers more data, and revises financial
estimates during this phase. Usually you will see the high-
est number of outsourcing personnel on-site, a mix between
transition team and some early run-time team personnel dur-
ing this phase.
5. Management—This is the phase where normal outsourcing
operation starts (day one). The run-time team has taken on
responsibility from the transition team and is providing the
services in the scope of the outsourcing deal.
6. Completion—The final phase could mean that the outsourc-
ing activities are transitioned back to the client or to another
outsourcing company. This phase might never be executed if
client and outsourcing company are both happy with the deal
and keep extending it.

Typical Financial Outsourcing Model

Outsourcing IT or business processes creates an interesting symbi-

otic relationship between the outsourcing company and the client
organization. Most of the times those symbiotic relationships are not
completely understood by the client or the outsourcing company. Is
it crucial for both sides to understand the financial model of the out-
sourcing deal, how it presents itself from the outsourcing company
perspective or client side. So what are some of the typical financial
characteristics of an outsourcing deal? Most of the IT outsourcing
engagements are initially capital expenditures (CapEx) heavy for the
outsourcing companies, with a return that increases over time as pro-
cesses are optimized and further cost savings have been implemented.
This maturity process is critical to the success of an outsourcing deal
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 O u t s o ur cin g 7

since the margins in today’s outsourcing world are usually paper-thin

and the profit is made by volume—more outsourcing engagements,
more profit. BPO outsourcing deals are usually not as heavy on the
CapEx but also follow a comparable life cycle when it comes to matu-
rity and increased profit. This model by itself creates a difficult climate
for security and privacy. In such cost-sensitive environments compli-
ance is achieved mainly through service-level agreements (SLAs) and
not risk management. The picture that the outsourcing industry likes
to paint, claiming to be the experts for certain technologies or pro-
cesses, is in most cases not what it really is. This is mainly due to the
missing synergy between engagements. Most outsourcing companies
create, for the purpose of mitigating business risks, stand-alone finan-
cial entities for their larger outsourcing engagements. These entities
(“mini corporations”) are expected to become cash-flow positive over
time. Resources are hired into these mini corporations. Sharing
resources across mini corporations is usually not done or in some cases
not even an option.

Geographical Regions

Cost plays a significant role when it comes to personnel. As a result,

large outsourcing companies have operations strategically located in
key high-tech locations in many low-cost countries. This trend has
gone so far that even traditional US outsourcing companies have, for
example, more personnel in India than in the United States. When
outsourcing to such offshore locations, it is important to understand
the risks that the operation in that country has to manage, ensuring
that the right decision is being made, allowing for a secure operation.
Even with the best business continuity measures in place, it would
be wrong to assume that an outsourcing company can operate in a
“bubble” at an offshore location. Outsourcing personnel will need to
commute between home and the office; systems require electricity;
and nature’s forces will not stop for an outsourcing company’s facility
either. The safety of your personnel that is visiting the offshore loca-
tion is another critical factor to consider.
Nowadays you can find outsourcing companies in nearly any part
of the world. Lately there is a trend to onshore and have service come
from low-cost rural areas in the United States or Eastern Europe.
© 2010 Taylor & Francis Group, LLC
8 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

This trend is supported by the changes in how work visas are

granted in the United States, making it more difficult for outsourcing
companies to bring in low-cost resources to the United States.

Top Outsourcing Countries

Over the years some of the outsourcing countries have differentiated

themselves from others. Global operating outsourcing companies
want you to believe that they operate as one big global organization.
The reality is that we are not all the same. So when you hear global
delivery model, you might want to do your research on which countries
are part of the global delivery model. In the end you will need to
visit or at least have staff or auditors visit those locations. This section
contains some information about the top 10 outsourcing countries* in
2012, evaluated in terms of six different aspects:
• Society—What are some of the key risk areas in the society?
For example, religious groups and social and class differences
are just some of the factors that are considered. This area is
particularly interesting for the personal security of visitors.
• Political—Political stability ensures that your outsourcing part-
ner stays in business and you do not suddenly lose your invest-
ment that is located in a foreign country due to political unrest
or a change in ruling party. This area is particularly interesting
when it comes to ensuring the continuity of operations.
• Economy—A healthy economy ensures growth and educated
talent that the outsourcing company can use to support your
operation. This aspect ensures that the outsourcing company
stays competitive and provides quality service.
• Crime—A high crime rate is an indicator for many problems.
It also puts your personnel at risk when traveling to that for-
eign country. Physical assets and intellectual property are
particularly at risk in countries with high crime rates.
• Environment—You would not put your operation at risk
by putting it in an area that is prone to hurricanes, earth-
quakes, or other natural disasters. Unfortunately, some of the
* As determined by Sourcing Line, an independent research firm.

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 O u t s o ur cin g 9

top outsourcing countries are known for some of the biggest

disasters in history. From a continuity of operations perspec-
tive, this is a critical risk area.
• Infrastructure—Does the infrastructure in the country ensure
that the outsourcing company can operate seamlessly? Has
the infrastructure kept up with the growth in the country?
Your outsourcing company might have backup generators
and uninterruptable power supplies, but if no diesel trucks
can come to the facility, the operation will shut down within
hours or days. If outsourcing personnel cannot come to work
due to public transportation strikes (in many of the outsourc-
ing countries, this is the main way to commute to/from work),
then this will have an impact on the service provided to you.
Each country is given a rating based on a scale from 0 to 3, with 3 (dots)
representing the highest risk and 0 (dots) representing an insignificant
risk. The information used was obtained from the State Department*
and from the CIA World Factbook.† Please refer to these two sources
to get the latest information.

India

GDP est. (Official Exchange): $1.825 trillion (2012 est.)

Capital: New Delhi

* Please check http://www.travel.state.gov for updated information.

† Please check https://www.cia.gov/library/publications/the-world-factbook for the
latest information.

© 2010 Taylor & Francis Group, LLC

10 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

Area (total): 3,287,263 sq km

Slightly more than one-third the size of the US
Data from CIA World Fact Book (https://www.cia.gov/library/
publications/the-world-factbook/)
India has been the leading country for offshore outsourcing since
the beginning of the offshore outsourcing trend. India has been the
preferred choice for IT and BP outsourcing for organizations in the
Americas and Europe for various reasons. IT and BP outsourcing first
started in India in the mid-1980s due to its large English-speaking,
low-cost workforce. India’s outsourcing grew rapidly through the
’90s, aided by the dot-com boom and the Y2K hype. Up to 2008 the
growth was unprecedented; however, the growth rates have signifi-
cantly dropped due to the global economic crisis and a disappointed
Western-world customer base that is watching the record-setting cor-
ruption in India. Magazines like The Economist published many arti-
cles about this situation in India and how it impacts the growth in the
country. One particular article, “In Search of a Dream,”* talks about
the history and why the Indian government has to step up efforts
to curb the corruption in the country, which has resulted in major
deficiencies in the health and educational sectors. On the other hand,
the fast growth of the outsourcing industry in India has resulted in
an increase in certain forms of crime, ranging from falsifying educa-
tional records and resumes up to visa fraud.† According to experts,‡
the general population of 1.2 billion (July 2013 est.) Indians are less
than acceptable to opening up to Western culture, which would help
to reform the country. Examples of this denial are strikes of various
groups, such as local storeowners that have opposed Western chains
opening stores in India. In July 2012 India was hit with one of the
largest power outages in history. Over 620 million people in 20 states
were without power due to a series of outages from the aging govern-
ment-owned power grid. The overdrawing by states has been deter-
mined as the result of this massive outage.
India continues to experience terrorist and insurgent activities,
which may affect Westerners. Anti-Western terrorist groups have
* http://www.economist.com/node/21563720/print
† http://www.justice.gov/usao/flm/press/2012/feb/20120215_Allala.html
‡ http://www.economist.com/node/21563414

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 O u t s o ur cin g 11

been active in India. Past attacks have taken place in public places,
such as luxury and other hotels, trains, train stations, markets, cin-
emas, mosques, and restaurants in large urban areas. One of the more
recent events is the February 13, 2012, bombing of an Israeli diplo-
matic vehicle near the diplomatic area in New Delhi. On September 7,
2011, a bomb blast at New Delhi’s High Court killed 12 people; other
attacks were the July 13, 2011, bombings of some crowded areas in
Mumbai; the December 2010 bomb attack at Shitla Ghat in Varanasi
during evening prayers; the February 2010 explosion at a café in Pune,
Maharashtra; and several coordinated terrorist attacks in May 2008
in major cities throughout India. Noticeable are the November 2008
attacks in Mumbai where more than 170 people were killed, many of
them Westerners. In late 2012 and early 2013, India got even more
press for a series of rapes that in some cases resulted in women dying
from their injuries. Rape of women has been a problem in India for
decades. Some parts of the population are no longer tolerating that
rapists are getting away without facing any consequences. Large dem-
onstrations have resulted from this situation.
India has large religious ceremonies that attract hundreds of thou-
sands of people, resulting in sometimes dangerous and often life-
threatening stampedes. Some of the local demonstrations can begin
spontaneously and escalate with little warning, disrupting transpor-
tation systems and city services, posing a risk to travelers. Indian
authorities occasionally impose curfews and/or restrict travel to han-
dle the situation. The northern city of Allahabad is home to one of the
world’s largest religious gatherings, which lasts 55 days and has more
than 110 million people attending.
India still has its caste system that can result in tensions between the
various castes and religious groups, causing disruption and violence.
In many cases the demonstrators block roads near popular tourist sites
to disrupt transportation and gain the attention of Indian authorities.
Occasionally the vehicles transporting tourists are attacked.
India has “anticonversion” laws in some states, and acts of con-
version sometimes trigger violent reactions from Hindu extremists.
India has several areas of instability, and the Indian state of Jammu
and Kashmir is one in particular. The Indian government prohib-
its foreigners from visiting certain areas. The India–Pakistan border
is another area of instability. Both India and Pakistan maintain a
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12 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

strong military presence on both sides of the border. Both India and
Pakistan claim an area of the Karakoram Mountain range. Incidents
of violence by ethnic insurgent groups, including bombings of buses,
trains, rail lines, and markets, occur frequently in the northeast-
ern states. US government employees are prohibited from traveling
to the states of Assam, Arunachal Pradesh, Mizoram, Nagaland,
Meghalaya, Tripura, and Manipur without permission from the US
Consulate in Kolkata. Restricted area permits are required for for-
eigners to visit certain Northeastern states (see the list of restricted
areas, below.) Maoist extremist groups, or “Naxalites,” are active in
East Central India primarily in rural areas. The Naxalites have a
long history of conflict with state and national authorities, including
frequent attacks on local police, paramilitary forces, and government
officials, and are responsible for more terrorist attacks in the coun-
try than any other organization. In February 2012, four officers of
the Border Security Force were killed in an ambush by Communist
Party of India–Maoist rebels in the Malkangiri district of Odisha. In
March 2012 Naxalite guerrillas abducted four people including two
Italian nationals from a remote area of southern Odisha. Naxalites
have not specifically targeted Westerners but have attacked symbolic
targets that have included Western companies and rail lines. Naxalites
are active in a large swath of India from eastern Maharashtra and
northern Andhra Pradesh through western West Bengal, particu-
larly in rural parts of Chhattisgarh and Jharkhand and on the borders
of Andhra Pradesh, Maharashtra, Madhya Pradesh, Uttar Pradesh,
Bihar, West Bengal, and Odisha. Civil unrest is common in the
south-central Indian state of Andhra Pradesh over the contentious
issue of creating a separate state called Telangana within Andhra
Pradesh. Certain parts of India are designated as restricted areas by
the Indian government and require special advance permission to
visit. These areas include the following:
• The state of Arunachal Pradesh
• Portions of the state of Sikkim
• Portions of the state of Himachal Pradesh near the Chinese
border
• Portions of the state of Uttarakhand (Uttaranchal) near the
Chinese border
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 O u t s o ur cin g 13

• Portions of the state of Rajasthan near the Pakistani border

• Portions of the state of Jammu and Kashmir near the line of
control with Pakistan and certain portions of Ladakh
• The Andaman and Nicobar Islands
• The Union Territory of the Laccadives Islands (Lakshadweep)
• The Tibetan colony in Mundgod, Karnataka
The quality of medical care in India can vary considerably depend-
ing on area. Medical care in larger cities can be comparable to
Western standards, but adequate medical care is usually very limited
or unavailable in rural areas. Dogs and bats can pose a high risk of
rabies transmission in most parts of India. Tuberculosis is a rising
problem. Depending on time of year and location visited, a malaria
prophylaxis is recommended.
In most parts of India summers are very hot. The heat usually
begins in April and continues till the beginning of October when the
monsoon season starts. The peak temperatures are usually reached in
June, with temperatures in the northern plains and the west reaching
45°C (113°F) and more. The first monsoons hit the country during
the same period, beginning in early June at the Kerala coast and mov-
ing further inland from there. Sometimes these monsoon rains can
be very heavy and cause floods and severe damage along the big riv-
ers of India, Bramaputhra and Ganges. The plains in the north and
the countryside of Rajasthan usually have a cold wave every year in
December and January. The minimum temperatures could go below
5°C (41°F). In the northern high-altitude areas can get snow; on
the other hand, in the northern mountains the summer months are
only mildly warm. Typhoons are usually not a danger for India. The
typhoon season starts in August and usually lasts till November with
the east coast of India having the highest typhoon risk. In recent years
(2012) some of the larger Indian cities have been suffering from severe
air pollution (smog) that is a result of the uncompromised growth of
the Indian industry.

Risk Factors
Society Political Economy Crime Environment Infrastructure

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Indonesia

GDP est. (Official Exchange): $878.2 billion (2012 est.)

Capital: Jakarta
Area (total): 1,904,569 sq km
Slightly less than three times the size of Texas
Data from CIA World Fact Book (https://www.cia.gov/library/
publications/the-world-factbook/)
Indonesia has been moving away from its traditional dependency on
exports and restructuring its economy to meet the challenges of IT
and IT-related services. As part of these efforts, Indonesia is continu-
ally liberalizing economic policies that support its outsourcing industry,
which has a large footprint in the call center market. The Indonesian
government has been implementing simplified processes for foreign
investments, tax-deductible expenses, and the development of training
and research programs. Indonesia comprises 17,508 islands and has a
population of approximately 251 million (July 2013 est.). This makes it
the fourth most populous country after China, India, and the United
States. Its Muslim population is the largest of any country. It is made up
of about 300 ethnic groups, mostly with European, Malaysian, Chinese,
Arab, or Indian background. Indonesia has one of the largest economies
in Southeast Asia and is one of the G-20 major economies. It is the only
Southeast Asian member of the Organization of the Petroleum Exporting
Countries (OPEC). Indonesia’s government holds a heavy influence on
the economy with many state-owned enterprises. The global economic
downturn in 2010 has taken a significant toll on the country, and the
rebound has been slow. Some contributing factors might also be that the
country was heavily hit in the East Asian crisis in 1997–1998 and by the
unrest in 2012 due to Muslims condemning the release of a movie in the
United States that put the prophet Muhammed into a bad light.
Since 2005, the Indonesian police and security forces have disrupted
a number of terrorist cells that carried out several bombings at various
times from 2000 to 2009. Indonesia suffered its worst terrorist attack
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in 2002, when more than 200 foreign tourists and Indonesian citizens
were killed in Bali. Deadly car bombs have exploded outside hotels
and resorts frequented by Westerners in Jakarta and Bali in 2003 and
2005 as well as outside the Australian Embassy in Jakarta in 2004.
In July 2009, Jemaah Islamiya (JI)-affiliated elements bombed two
Western hotels in Jakarta, killing foreigners and 9 Indonesians, and
injuring more than 50, including 6 US citizens. Since these attacks,
Indonesia has effectively pursued counterterrorism efforts through leg-
islation and law enforcement. In 2010, security forces arrested more
than 100 individuals on terrorism-related charges. However, Indonesia
still suffers from violence that is carried out with little or no warning.
Indonesia is located on the “Ring of Fire,” which often results in
severe seismic activity that can pose grave threats and disrupt daily
life and regional air traffic. The Indonesian emergency response capa-
bilities are limited, and Westerners should prepare for unforeseen
emergencies when living or traveling in Indonesia.
Indonesia has been ranked #118 out of 174 countries listed by the
Transparency International corruption index, which is the lowest
ranking out of all top-10 outsourcing countries.
Crime has been a problem in a majority of the metropolitan areas
in Indonesia. Crimes of opportunity such as pickpocketing and
theft occur throughout the country. Indonesian police have noted an
upward trend in burglaries and armed robberies in Jakarta resulting
in an increase of 25 percent in 2010. Claiming to act in the name of
religious or moral standards, certain extremist groups have, on occa-
sion, attacked nightspots and places of entertainment. Most of these
attacks have sought to destroy property rather than to injure individu-
als. International news events can sometimes trigger anti-American
or anti-Western demonstrations.
Credit card fraud and theft are serious and growing problems in
Indonesia, particularly for Westerners. Travelers who decide to use
credit cards should monitor their credit card activity carefully and
immediately report any unauthorized use to their financial institu-
tion. ATM cards have been skimmed and cloned, resulting in bank
accounts being drained.
Indonesia’s healthcare system generally can be rated far below US
standards. Some routine medical care is available in most major cities;
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however, it is advisable to leave the country and seek medical atten-

tion in countries providing better care.
Indonesia is actually split by the equator making it an entirely tropi-
cal climate. Temperatures average between 23°C (73.4°F) in the higher
mountain regions, 26°C (78.8°F) in the inland and mountain areas,
and 28°C (82.4°F) in the coastal plains. The relative humidity is high
and ranges between 70 and 90 percent. Indonesia sees extreme varia-
tions in rainfall, which are caused by monsoons. June to September is
considered the dry season, with December to March being the rainy
season. Western Sumatra, Java, Bali, the interiors of Kalimantan,
Sulawesi, and Irian Jaya are the regions of Indonesia with the highest
rainfall, measuring more than 2,000 millimeters per year. Typhoons
can hit Indonesia between September and December, resulting in rain-
storms and heavy winds. Not every season has strong typhoons, and in
some years only a few typhoons occur during the tropical storm season.

Risk Factors
Society Political Economy Crime Environment Infrastructure

Estonia

GDP est. (Official Exchange): $21.86 billion (2012 est.)

Capital: Tallinn
Area (total): 45,228 sq km
Slightly smaller than New Hampshire and Vermont combined
Data from CIA World Fact Book (https://www.cia.gov/library/
publications/the-world-factbook/)
Estonia joined the European Union in 2004 as a revitalized nation that
had formerly been under Soviet rule. The nation, with its population of
approximately 1.2 million (July 2013 est.), has been known for adopt-
ing innovations and developments in information and communication
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technologies that have proven to be more successful than those in some

more developed nations in Western Europe. Estonia became a North
Atlantic Treaty Organization (NATO) member in 2004 and joined the
Organization for Economic Cooperation and Development in December
2010. Estonia also introduced the euro currency in early 2011.
The country has been known for its authorities being vigilant in
combating terrorism and other threats to security. There have been
no noticeable incidents of terrorism directed toward foreigners in
Estonia. Civil unrest is rarely a problem in Estonia; even large public
gatherings and demonstrations may occur on occasion in response to
political issues. Medical care in Estonia still falls short of Western
standards. The best places for medical care are located in major cities
like Tallinn, Tartu, and Pärnu. Many highly trained medical profes-
sionals are available; however, many hospitals and clinics still suffer
from a lack of equipment and resources.
Estonia has been ranked #32 on the Transparency International
corruption index.
The climate of Estonia is typical of northern European countries,
with warm, dry summers and fairly severe winters. January is typi-
cally the coldest month, with daytime temperatures usually around
–5°C (23°F). However, winter months can be much colder, with
temperatures far below zero, about –20°C (–4°F) or lower. Heavy
snowfall or even snowstorms are also possible and are not unusual
during winter months. In general the weather is often breezy and
humid due to the proximity of the Baltic Sea.

Risk Factors
Society Political Economy Crime Environment Infrastructure

Singapore

GDP est. (Official Exchange): $276.5 billion (2012 est.)

Capital: Singapore
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18 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

Area (total): 697 sq km

Slightly more than 3.5 times the size of Washington, DC
Data from CIA World Fact Book (https://www.cia.gov/library/
publications/the-world-factbook/)
Singapore began its history as an international trading post when
British settlers came to the area in 1819. The nation is approximately
three times the size of Washington, D.C. Today, close to 100 per-
cent of the population of approximately 5.4 million (July 2013 est.)
live in an urban environment. Singapore has established a very suc-
cessful free-market economy, showing high stability and a very high
per capita gross domestic product (GDP). Probably the most signifi-
cant element of the nation’s GDP is its exports, which are made up
of electronics, IT products, pharmaceuticals, and financial services.
Despite the economic crisis early in the new millennium, the econ-
omy is growing at a double-digit growth rate. Singapore’s business
environment is attractive to foreign investors, and macroeconomic
stability is at a level comparable to that in Canada. This is supported
by a Transparency International corruption index rating that puts
Singapore at #5, better than Switzerland (#6) and Germany (#13).
The level of corruption in Singapore has been the best of any of the
top 10 outsourcing locations.
Singapore’s roadways are some of the best in the world, as is their
electrical supply—both are ranked higher than those in the United
States. Contract enforcement in Singapore is much easier than in
other outsourcing locations.
Singapore is considered a small, stable, highly developed country
with an elected parliamentary system of government and a population
comprising 75 percent Chinese, 14 percent Malay, 9 percent Indian,
and 2 percent others. English is widely spoken; criminal penalties are
strict, and law enforcement is rigorous. In 2001 the Singaporean gov-
ernment uncovered a plot master-minded by Jemaah Islamiyah (JI),
a terrorist organization with links to Al Qaeda. The plans were dis-
rupted, and the JI organization in Singapore was largely wiped out.
Extremist groups in Southeast Asia have been identified with the
desire to conduct attacks against the government, private sector facili-
ties, and locations where Westerners are known to congregate. Those
terrorist groups do not distinguish between official and civilian targets.
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Singapore has a very low crime rate; however, credit cards should
not be removed from your sight nor the numbers given over the
phone. Particularly, the use of a secure Internet connection for finan-
cial transactions is recommended.
In Singapore people can be arrested for jaywalking, littering, or
spitting. Commercial disputes that may be handled as civil suits in
other countries can escalate to criminal cases in Singapore and may
result in hefty fines and sometimes even prison sentences. For vandal-
ism offenses a court in Singapore might impose a caning sentence
on the violator. Authorities in Singapore may also impose caning for
other offenses. Singapore police have the authority to conduct random
drug analysis on both residents and nonresidents. They do not distin-
guish between drugs consumed before or after entering Singapore,
always applying local laws. US citizens have been surprised that they
were arrested for violations that would not have resulted in arrests in
the United States.
Judges in Singapore hear cases and decide sentencing without a
jury. The government of Singapore does not provide legal assistance
except in capital cases. Legal assistance may be available in some other
cases through the Law Society of Singapore.
Singapore enforces the laws pertaining to the propriety of behav-
ior between people and the modesty of individuals. The Singaporean
law known as “outrage of modesty” is defined as an assault or use of
criminal force on any person with the intent to, or the knowledge that
it may, outrage the modesty of that person. The penalties for noncom-
pliance may include imprisonment for up to 2 years, a fine, caning, or
a combination thereof. Western men are sometimes accused of inap-
propriately touching other people, often women, resulting in their
prosecution and punishment under this Singaporean law.
Singapore provides a good medical network with good doctors. The
doctors and hospitals expect immediate payment for health services by
credit card or cash. Most Western health insurances are not accepted.
Recipients of health care might be the target for Ministry of Health
auditors gaining access to private patient medical records without the
consent of the patient, and in certain circumstances physicians may be
required to provide information relating to the diagnosis or treatment
without the patient’s consent.
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Singapore has had occasional outbreaks of mosquito-transmitted

illnesses. If you visit Singapore during a pandemic, as experienced in
the 2009 H1N1 pandemic, you should expect that the Singaporean
government will put in place strict measures like screening in public
facilities such as the airport, hospitals, and museums or quarantining
individuals that might have been exposed to the illness.
Singapore’s road and highway network is highly developed and well
maintained. Public transportation and taxis are abundant, inexpen-
sive, and reliable. Closed-circuit cameras monitor all major roads.
Singapore’s climate does not vary in temperature or air pressure
much, but it does in rainfall. Singapore’s climate is tropical, with an
annual average temperature around 28°C (82.4°F), with daytime
highs of 35°C (95°F) and more, and lows around 20°C (68°F). The
relative humidity is quite high and ranges between 70 and 90 per-
cent. There is a monsoon season from December to March and a dry
season from June to September. Typhoons can hit Singapore from
July to mid-November, sometimes causing heavy damage, flooding,
and erosion. Most typhoons in the region travel other routes and hit
Singapore quite seldom.

Risk Factors
Society Political Economy Crime Environment Infrastructure

China

GDP est. (Official Exchange): $8.227 trillion (2012 est.)

Capital: Beijing
Area (total): 9,596,961 sq km
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 O u t s o ur cin g 21

Slightly smaller than the US

Data from CIA World Fact Book (https://www.cia.gov/library/
publications/the-world-factbook/)
The People’s Republic of China was established on October 1, 1949.
With a population of approximately 1.3 billion (July 2013 est.), China
is the world’s most populous country. It is the world’s fourth largest
country in terms of territory. The political power is centralized with
the Chinese Communist party. For the past 20 years China has been
undergoing major economic and social changes.
China has been in the press for various issues that have arisen in
the 2010s. Accusations of currency manipulations, stealing of intel-
lectual property, and human rights violations are just the tip of the
iceberg. China has a hard-working, well-educated workforce that
sometimes is living in extremely poor living conditions, to just have
work. The society looks very much like the society in Europe or the
United States during the industrial revolution, when masses of people
from rural areas found their way into factories in the cities. As his-
tory showed Europeans and Americans, change will not wait for long.
Lately, more and more riots and even organized strikes have been
observed in large Chinese corporations that are manufacturing for
companies in the Western world, most notably Apple. Cases of slav-
ery have been reported in which missing people were forced to work
in coal mines, sometimes far away from where they were abducted.
The Chinese government still maintains its big firewall, filtering the
information that goes into or out of China. Early in the new millen-
nium, the Chinese government added as an additional measure the
installation of government-owned spyware on any new personal com-
puter sold in China. Many things indicate that the Chinese govern-
ment is actively involved in hacking Western computer systems. One
notable case was the incident in April 2010 in which for 18 minutes a
majority of US- and Canada-based Internet traffic was rerouted to go
through Chinese Internet routers.
The government has a tight control over foreigners that are in
the country. Whether traveling to or living in China, foreigners are
required to register with the police within 24 hours of arrival in the
country. Many areas of China are off limits to Westerners. These areas
can be accessed only in organized travel groups.
© 2010 Taylor & Francis Group, LLC
22 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

China itself is such a huge market and will soon become the larg-
est market, with over 1.3 billion consumers that could impact the
biggest manufacturers and retailers in the world. However, China’s
large population does not necessarily provide a competitive advantage
against the established outsourcing industry.
China and India are key countries used by the global sourcing
industry. China’s growth has resulted in some tension between these
two countries, usurping a significant segment of India’s outsourcing
revenue year after year.
China’s five major cities that provide the majority of its sourcing ser-
vices are Beijing; Chengdu; Shanghai, known for providing product
development, research and testing, and business analytics; Shenzhen,
specializing in software, application maintenance, and development;
and Guangzhou, known for its engineering services.
The recession in the 2010s has boosted China’s service industry,
including its sourcing market. The Chinese government has recog-
nized an opportunity and has made significant policy changes to pro-
vide better financial support, subsidies, tax breaks, and intellectual
property protection to companies located in 20 pilot cities, including
Hangzhou, Suzhou, Xian, Shanghai, and Beijing, among others.
China’s economy was revived during Deng Xiaoping’s reign in
China, after it had been demolished for decades due to foreign inva-
sions. Deng focused on a free market–oriented economy that started
changing the living standards of its citizens. It also led to China’s
rapid industrialization, which made it one of the most important
economies in the world and a “returning superpower” in many ways.
China’s GDP has increased tenfold since 1978, and in 2009
China’s economy became the second largest in the world after the
United States. However, the country still belongs to the low- to mid-
dle-income per capita group of sourcing countries when measured on
purchasing power parity. In 2009, when the global crisis resulted in
less demand for Chinese exports, making the country’s economy vul-
nerable for the first time in many years, the government started to
reform its economic policies and increase its domestic consumption to
lessen the country’s dependence on foreign exports.
Due to its rapid economic success, China is facing major challenges
including environmental damage. High domestic savings rates and
low domestic demand, corruption and legal economic violations, and
© 2010 Taylor & Francis Group, LLC
 O u t s o ur cin g 23

a lack of adequate job growth for its migrants and new entrants to the
workforce have created tension within the society.
As of 2012 China’s total workforce is an estimated 780 million,
the largest in the world. China has also an edge in language skills,
especially in cities like Shanghai, where most of the engineers can
speak Japanese and Chinese.
Since the fall of the Cultural Revolution, China’s education system
has been focused on modernization. China has the highest number of
university graduates in the world every year.
The main language of the people is Standard Chinese or Mandarin.
However, it is estimated that only 5 percent of China’s population
speaks English.
According to the International Telecommunications Union, there
are around 22.2 Internet users for every 100 inhabitants in China.
This puts China below average, although it has a higher ranking com-
pared with India or the Philippines.
China has one the best road systems, with the United States, Chile,
Canada, Malaysia, and Thailand being the top 5 countries worldwide.
The supply of electric power is also one of the most reliable ones of
the top 10 sourcing countries. On the other hand, China has a low
per capita subscription rate, despite having one of the largest telecom-
munications markets in the world.
For most Westerners, China is a very safe country. Petty street crime
and business disputes between Westerners and Chinese partners are
the most common safety concerns when doing business in China.
Chinese security personnel watch foreign visitors and may place
Westerners under surveillance. Hotel rooms, offices, cars, taxis, tele-
phones, Internet usage, and fax machines may be monitored by audio
and video. Personal possessions in hotel rooms, including computers,
may be searched without consent or knowledge.
China usually does not have violent crimes; however, violent
demonstrations can erupt without warning, and in the recent past
there have been some fatal bombings and explosions, which could
pose a threat to foreign visitors. The majority of the local incidents
are related to disputes over land seizures, social issues, employ-
ment, environmental problems, or ethnic minorities. Some of those
incidents have become large scale and involved criminal activity,
including hostage taking and vandalism. In China, visitors should
© 2010 Taylor & Francis Group, LLC
24 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

always take routine safety precautions by paying attention to their

surroundings. Petty theft remains the most prevalent type of crime.
Pickpockets target Westerners at sightseeing destinations, airports,
markets, and stores. Typically passports and wallets are targeted,
with most incidents involving items kept in back pockets, back-
packs, or bags and purses swung over a shoulder or set down in a
taxi, vehicle, restaurant, or shop.
Narcotics-related crimes and use are on the rise in China. Chinese
law enforcement authorities have shown little tolerance for illegal drugs,
and they periodically conduct widespread sweeps of bar and nightclub
districts, targeting narcotics distributors and drug users. Westerners
from various countries have been detained in such police actions.
The circulation of counterfeit currency is a significant concern in
China. Cab drivers and businesses are a typical entry point of coun-
terfeit currency into circulation. There have been cases of people
receiving counterfeit bills from freestanding ATMs.
Westerners have been detained and deported for distributing religious
literature. Chinese customs authorities have enforced strict regulations
concerning the importation of religious literature, including Bibles.
Most Chinese people use cell phones for calls and text messaging.
Vendors require identification from anyone purchasing a SIM (sub-
scriber identity module) card, and the purchaser’s identity is registered
with the government. Internet access is widely available throughout
China. Most hotels, even in remote areas, offer Internet access, often
for a fee. Low-cost cyber cafes or Internet bars are widely available
and are often open 24 hours a day. The government requires that you
show your passport and that a photo is taken before access is granted.
Many websites are blocked, including social networking sites such as
Facebook, and all Internet activity is monitored.
Before entering into employment or a commercial contract in
China, contracts should be first reviewed by legal counsel in the
United States and in China. Many Westerners have reported difficul-
ties in getting their contracts enforced by Chinese courts. Others have
reported that they were being forced out of profitable joint ventures
and unable to secure legal recourse in China. If a court order requires
paying a settlement in a legal case, failure to make this payment may
result in an exit ban, which will prohibit departure from China until
payment is made.
© 2010 Taylor & Francis Group, LLC
 O u t s o ur cin g 25

China ranks #80 on the Transparency International corruption

index and is comparable to Bulgaria which is ranked #75.
In civil business disputes in China, the Chinese government may
prohibit you from leaving China until the matter is resolved under
Chinese law. There are cases of Westerners having to stay in China
for months and even years while their civil cases are pending. In some
cases defendants have even been put into police custody to prevent
them from trying to leave the country. Chinese businesspeople who
may feel that they have been wronged by a foreign business partner
may hire “debt collectors” to harass and intimidate the foreigner in
hopes of collecting the debt. Businessmen have in some cases been
physically detained as leverage during dispute negotiations.
Air pollution is a big problem in many cities or even regions of China.
The types of pollution reach from particle pollution up to high levels of
ozone, potentially resulting in significant health effects. Air quality can
differ significantly between cities or between urban and rural areas.
The level of medical service and quality varies throughout China.
In many places, doctors and hospitals require payment in cash at the
time of service and may not begin treatment without payment or may
discontinue treatment if it becomes obvious that you are unable to pay.
In most rural areas, only rudimentary medical facilities are available,
often with poorly trained personnel who have little medical equipment
and medications available. Rural clinics are often reluctant to accept
responsibility for treating foreigners, even in emergency situations.
In China medical rules, regulations, and conditions vary greatly
throughout the country. HIV is a significant concern in China. An
estimated quarter of a million people in China are infected with HIV,
most of whom are not aware of their status. Tuberculosis is also an
increasingly serious health concern in China, and for the first time in
10 years an outbreak of polio was reported in 2012.
The traffic in China can be described as chaotic and largely unregu-
lated, and right-of-way and other rules are usually ignored. Even minor
accidents can turn into violent fights with sometimes the bystanders
asking for bribes to favor one or the other driver. The average Chinese
driver has fewer than 5 years of driving experience. As a result, the
rate of fatal traffic accidents is one of the highest in the world.
With China being one of the largest countries of the world, it is
difficult to make a general statement about the climate. China spans
© 2010 Taylor & Francis Group, LLC
26 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

multiple climate zones. The southeast coast of China has been subject
to strong typhoons and tropical storms, usually from July through
September. China is also a seismically active country, with earthquakes
occurring throughout the country. Notable earthquakes include one
in Qinghai in 2010, in which 3,000 people were killed, and a major
quake in Sichuan in 2008, when more than 87,000 people died.

Risk Factors
Society Political Economy Crime Environment Infrastructure

Bulgaria

GDP est. (Official Exchange): $51.02 billion (2012 est.)

Capital: Sofia
Area (total): 110,879 sq km
Slightly larger than Tennessee
Data from CIA World Fact Book (https://www.cia.gov/library/
publications/the-world-factbook/)
Many Eastern European countries are now interesting places for out-
sourcing companies. In 2010 Bulgaria was the first European country
to be included as one of the top outsourcing countries.
Located in the Balkans, in southeastern Europe together with
Slovakia, Romania, and the Czech Republic, Bulgaria is particularly
interesting for companies in neighboring European countries that
want to nearshore.
During the glory days of the USSR, Bulgaria was known as the
“Soviet Silicon Valley,” and its software sector was heavily subsidized
by the government. For many decades Bulgaria was a key supplier
of software and hardware to the Soviet Union and other Eastern
© 2010 Taylor & Francis Group, LLC
 O u t s o ur cin g 27

European countries. This has resulted in over 40 years of experience

in hardware, software, and electronic development.
Bulgaria is attractive due to a stable macroeconomic and political
environment, competitive pricing, and a highly educated and quali-
fied workforce.
Despite its now capitalist system, the country still has remainders
of the communist system in place. This is one of the reasons why the
bureaucracy can create quite a number of challenges to the private
sector. Particularly start-up companies can run into bureaucratic hur-
dles that can result in significant delays. The judicial system requires
improvement. Addressing irregularities in the legal system and short-
ening of court action processes are desperately needed changes.
In 2007 Bulgaria joined the European Union and experienced rapid
economic growth, particularly in urban areas. Since 2008 growth
has slowed down due to the financial crisis. Facilities for travelers
are widely available, although infrastructure conditions can vary, and
some facilities and services are not up to Western standards.
The Republic of Bulgaria had an estimated 7 million residents in July
2013 and is the 16th largest country in Europe. Key land routes from
Europe to the Middle East and Asia go through Bulgaria. It shares
borders with Romania, Turkey, Greece, Serbia, and Macedonia. The
main language is Bulgarian, followed by Turkish and Roma. English
is the primary language used for international business transactions,
and approximately 15 percent of the population speaks English flu-
ently. The main religion is primarily Bulgarian Orthodox, with a
smaller portion of the population being Muslims and Christians.
The World Bank has classified Bulgaria’s open free-market system
as an “upper-middle-income economy.”* It is ranked as the lowest-
income state member of the EU. However, it is one of the fastest-
growing European countries in recent years.
Bulgaria became a People’s Republic in 1946 after entering the
Soviet bloc. After having its first multiparty elections in 1990 the coun-
try gained independence. Since gaining its independence and emerg-
ing as a parliamentary democracy, Bulgaria had to deal with inflation,
unemployment, and corruption. In 2004 the nation joined NATO.
After entering the EU, Bulgaria’s economy grew at a rate greater than 6
* http://www.worldbank.org/en/country/bulgaria

© 2010 Taylor & Francis Group, LLC

28 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

percent due to the foreign investments and consumption. The govern-

ment has been instrumental in driving reform and financial planning.
During the global downturn starting in 2009, the economy contracted
nearly 5 percent. In 2012 Bulgaria’s workforce consisted of more than
3.4 million workers. Bulgaria has suffered a high unemployment rate.
In 2012 the rate was at 9.2 percent. In 2012 approximately 70 percent
of the total population lived in urban areas. Its largest city and capital is
Sofia, with a population of 1.192 million people (2012).
Due to the euro crisis and the generally slow international economy,
the country’s unemployment rate has been going up. The situation was
further exacerbated by the corruption of some of Bulgaria’s public offi-
cials, the presence of organized crime, and a weakened judiciary system.
Bulgaria has a good education system. Many of Bulgaria’s youth
have completed higher education and previously have gone through
intensive training in languages, sciences, and other technical subjects
at a very young age.
Bulgaria has heavily invested in technology since breaking away
from the USSR bloc. However, Bulgaria has low levels of Internet
accessibility, one of the lowest of all EU member countries. In 2010
just one in three residents had access.
Economic competitiveness and stability are key aspects to the long-
term security of an outsourcing business. According to the World
Economic Forum,* which publishes the Global Competitive Index,
Bulgaria is at the bottom of the index. The macroeconomic stability
is being ranked above average, putting Bulgaria at number 9 among
the top 10 countries. This makes it one of the countries with the most
stable government surplus or deficit, national savings rate, inflation,
interest rate spread, and government debt.
The quality of roads affects employees’ productivity and companies’
costs by adding to transportation cost of goods or damaging sensi-
tive goods during transport. A study by the World Economic Forum
ranks Bulgaria at the bottom in terms of road quality, together with
other European countries such as Ukraine, Poland, and Romania.
The reliability of the electrical supply is ranked low. Bulgaria, together
with India, Pakistan, Vietnam, South Africa, and Argentina, are on
the bottom of the list of countries with reliable electrical supply.
* http://www.weforum.org/issues/global-competitiveness

© 2010 Taylor & Francis Group, LLC

 O u t s o ur cin g 29

Being able to enforce contracts is critical to protect your investment

in a foreign country. In Bulgaria it takes significant time and steps to
enforce contracts, which puts it at the bottom of this list together with
Indonesia, Egypt, Brazil, India, and Pakistan.
Bulgaria ranks below average for intellectual property protection
as compared with Canada, the United States, and South Africa. This
score goes hand in hand with the protection against software piracy.
Bulgaria’s joining the European Union has enhanced its overall
security environment for business travelers. Still, violence related to
criminal groups can occur sporadically in public locations. Some of
the incidents include bombings and shootings, likely the result of
gang wars between rival organized crime syndicates. This remains a
huge problem in Bulgaria’s largely cash economy. In January 2010 a
journalist who had published a book about Bulgarian organized crime
was assassinated in Sofia in broad daylight.
Public protests in the form of demonstrations or strikes can occur
sporadically, resulting in traffic disruptions, particularly in the cen-
ter of cities. While these demonstrations are usually peaceful, con-
frontational demonstrations have occurred, and even demonstrations
intended to be peaceful have turned into violent confrontations.
Nationwide demonstrations in October 2011 resulted in some vio-
lence and destruction of property.
Particularly in crowded places, pickpocketing and purse snatch-
ing have been frequent occurrences. Con artists operate frequently on
public transportation and in bus and train stations.
Automobile theft is a huge concern in Bulgaria; particularly four-
wheel-drive vehicles and late-model European sedans are popular tar-
gets. The recovery rate of stolen vehicles is extremely low. Break-ins
with cars are common in residential areas or near parks. Residential
burglaries are also a common occurrence especially in major cities
in Bulgaria. The installation of window grills, steel doors with well-
functioning locks, and alarm systems is common in Bulgaria.
Making credit card charges over the Internet can be dangerous
in Bulgaria.
Due to the potential for fraud and other criminal activity, credit
cards are used sparingly and with extreme caution. It is not unusual for
skimming devices surreptitiously attached to ATMs by criminals to
© 2010 Taylor & Francis Group, LLC
30 M a n agin g Risk in O u t s o ur cin g IT Serv i c e s

be used to capture card numbers and personal identification numbers

(PINs) for later criminal use.
Corruption remains an important concern of the Bulgarian govern-
ment. Bulgaria was ranked #75 by the Transparency International cor-
ruption index. In comparison, Estonia was ranked #32. The Commission
for Coordinating of the Activity for Combating Corruption manages
the efforts of each government agency’s internal inspectorate in fight-
ing public corruption and engages in public awareness campaigns.
Bulgarian physicians are trained professionals with very high stan-
dards. Most hospitals and clinics, especially in village areas, are gen-
erally not equipped and maintained to meet US or Western European
standards. Basic medical supplies like over-the-counter or prescrip-
tion medications are widely available; however, highly specialized
treatment may not be obtainable. The increasing number of cases of
tuberculosis is becoming a serious health issue in Bulgaria.
To enter Bulgaria you might have to show evidence of valid health
insurance. In many places within Bulgaria doctors and hospitals still
expect payment in cash at the time of service.
A number of roads in Bulgaria are in poor condition and require
repair. Rockslides and landslides may be encountered on roads in
mountainous areas and contribute to the overall bad picture of road
safety. During the agricultural season, livestock and animal-drawn
carts are present, creating road hazards throughout the country. The
travel conditions worsen during the winter season as roads become icy
and potholes proliferate.
Driving in Bulgaria can be extremely dangerous. Aggressive driving
habits and the lack of safe infrastructure with a mixture of late-model
and old cars on the country’s highways are the main contributing fac-
tors to a high fatality rate in road accidents. In particular, drivers of late-
model sedans are known to speed and drive dangerously. The drivers of
such vehicles are sometimes armed, organized crime figures.
Bulgaria’s climate can be described as a temperate-continental with
moderate variations, which is characteristic for Central Europe. Hot
summers, long and cold winters, and very distinct seasons are typical
for Bulgaria. Snow may occur throughout December to mid-March.
In the mountainous areas of Bulgaria, snow is typical in those months.
The annual average temperatures can range from 8°C (46.4°F)
in the north and 11°C (51.8°F) in the south, with temperatures of
© 2010 Taylor & Francis Group, LLC
 O u t s o ur cin g 31

2.6°C (36.68°F) in the mountains and 12°C (53.6°F) in the plains.

The warmest areas are in the south of Bulgaria, which is influenced
by the nearby Mediterranean Sea. Daytime temperatures can vary
from 0°–5°C (32°–41°F) in the winter and 25°–30°C (77°–86°F) in
summer months. The southern part of Bulgaria can be warmer than
the northern and eastern mountainous areas. Particularly the Balkan
Mountains can be cooler, with moderate daytime temperatures and
cold nights in the summer and temperatures far below the freezing
point in the winter.
The annual average rainfall is about 700 mm, more in the moun-
tains (up to 1,000 mm and more) and less at the coast (around 400–
600 mm). Typically it can rain throughout the year. In the summer,
showers and thunderstorms are common, especially in the mountain
areas. However, the winters are usually dry.

Risk Factors
Society Political Economy Crime Environment Infrastructure

Philippines

GDP est. (Official Exchange): $250.4 billion (2012 est.)

Capital: Manila
Area (total): 300,000 sq km
Slightly larger than Arizona
Data from CIA World Fact Book (https://www.cia.gov/library/
publications/the-world-factbook/)
© 2010 Taylor & Francis Group, LLC
 Another Random Document on
Scribd Without Any Related Topics
“No, of course not. I’m not very fond of surprises as a rule,
but still, as it has happened I’m glad you’re here. It seems
a shame to begin working you the moment you arrive, but
will you go over to Weevilscoombe this morning for me to
speak to Mr Brander about Layton’s lease? It will save me
from writing a letter which after all would probably not have
made things clear.”

Sir Philip tapped his boots with his cane reflectively.

“This morning?” he said. “I suppose to-morrow wouldn’t do?

I want to go over to Coombesthorpe to-day if I can.”

“I am afraid to-morrow would not do,” said his grandmother.

“I should like you to be at Mr Brander’s by twelve. I am
going over to Coombesthorpe myself, so I can tell them you
will be there to-morrow. Indeed I don’t think Maddie and
Ermine will be home till this evening. I am going to see
their father, who has been seriously ill.”

“And that child—I’m delighted to hear she is such a child

still,” said Philip. “I suppose you look after her when the
girls are away.”

“Yes,” said Lady Cheynes, dryly. “I do. But who told you she
was ‘such a child’?”

“Ermine. She said that not the schoolroom even, but the
nursery was Ella’s proper place,” replied Philip, honestly
believing that he was literally repeating Ermine’s words.

“Indeed!” said Lady Cheynes slightly raising her eyebrows.

Then the bell was rung and Sir Philip’s dog-cart ordered to
be round in half an hour.
“In the meantime,” said his grandmother, “if you will come
to the study, I will explain to you the points which I wish
Brander clearly to understand.” Philip sauntered to the
study.

“Granny is even more than commonly energetic,” he said to

himself, as he stood at the window gazing out at the wintry
landscape while he waited for her. “However—I wonder if by
any chance she knows anything about that lovely little
personage last night! She has such quick eyes, I expect she
noticed her—she could hardly have failed to do so. I expect
the small princess is in trouble about her shoe this morning!
It looks like a family heirloom.”

He drew it out of his pocket and looked at it—yes, by

daylight it seemed even quainter. The satin was a rich
creamy yellow, and the buckle was of curiously antique
form.

“Granny could tell the date to a year,” he thought to himself.

All the same, he slipped the shoe back to its hiding place
pretty sharply when he heard the door handle turn and his
grandmother enter the room.

He would have been rather astonished had he overheard

the directions she had just been giving to her trusty Jones.

“I don’t wish Miss Ella to know of Sir Philip’s return,” she

said. “Take her her breakfast when she wakes—I told her to
ring for it—and tell her that the carriage will be round as
soon as she is dressed. I am going to drive back to
Coombesthorpe with her, myself.”

Then the old lady rejoined her grandson in the study and
kept him immersed in her instructions to Mr Brander, till his
dog-cart was announced.
“You will probably stay to luncheon with him,” she said. “You
may as well, for you would not find me at home. I am going
to lunch at Coombesthorpe.”

“Then tell them,” Sir Philip began,—“oh no, by the by, you
will not see the girls?”

“Perhaps I shall—I may wait till they return.”

“Tell them I shall be over to-morrow, then. They were

looking very well last night, didn’t you think so? Ermine
especially, Madelene looked rather solemn—does that child
worry her much, do you think, Granny?”

“If she does, it is Maddie’s own fault,” Lady Cheynes replied

sharply. “At least hers to some extent, and perhaps partly
her father’s. I find Ella as reasonable as one could wish. I’m
sure when she is alone with me—” but here she suddenly
checked herself.

“Is she ever alone with you? Do you have her here? Upon
my word, Granny, it’s most self-sacrificing of you. But—
you’re not going to have her here any more, I hope, not
now I’ve come back?”

“How unselfish you are!” said his grandmother, with a smile,

however, that somewhat belied the satire of her words.
“She is my god-daughter; I have duties and responsibilities
with regard to her.”

Philip murmured something inaudible. But Lady Cheynes

took no notice.

“You shouldn’t keep the horse waiting, Phil,” she said. “It is
bitingly cold.”
“Good-bye then, till—dinner-time, I suppose?” he said as he
went off.

He felt slightly dissatisfied. “Granny” had not seemed as

pleased to see him as she usually was after an absence; she
had asked him nothing about matters at Grimswell, where
he had really been working hard, and “going into things,”—
the rectifying of abuses, the setting a-foot new benevolent
schemes, and so on—with fervour and energy which he had
scarcely known he possessed. He could and would of course
talk it all over with Granny when he got her to himself, that
very evening probably, but still—no, she had not been quite
herself that morning, she was “carried” and constrained.
Perhaps there were troubles at Coombesthorpe which he
had not heard of; his grandmother had spoken rather
snappishly of Madelene.

“I do believe it’s all that child,” was the conclusion at which

the young man finally arrived. “I must get it all out of
Granny and help to smooth things a little if I can. I
wonder,”—was his next thought—“I wonder if Maddie
noticed that girl or knew who she was.”

He found the lawyer at home, but somewhat surprised to

see him. Sir Philip explained to him his unexpected return.
Mr Brander, who had known him from his infancy, pricked
up his ears at the prospect of a little local gossip.

“So you were in time for the Manor dance, Sir Philip. A very
successful affair I hear. My nephew,”—Mr Brander had a
brother who ranked among the small squirearchy—“my
nephew looked in this morning on his way home; he slept at
his sister’s—and he was full of it. He was telling me all the
details. I was delighted to hear that Lady Cheynes
chaperoned her nieces herself, though sorry to hear of the
Colonel’s illness.”
Philip looked surprised.

“Oh no,” he said, “my cousins were staying in the house.

What put it into my lady’s head to go I’m sure I don’t know,
but it was not as chaperone to any one.”

“Indeed,” said his companion, “I must have misunderstood

Fred then. But he was quite clear about it—said that the
youngest Miss St Quentin was tremendously admired, bids
fair in fact to, so to speak, outshine her sisters. Of course
there is the charm of novelty in her case; she is quite a
stranger in this neighbourhood.”

Philip’s brow contracted. Old Brander meant no harm, but

his remarks struck the young man as slightly free. Besides
—what utter nonsense he was talking!

“There is some absurd mistake,” he remarked rather stiffly.

“I don’t suppose you misunderstood your nephew, but he
has got hold of some nonsense. The youngest Miss St
Quentin is still to all intents and purposes a child; there
could have been no question of her being at the Manor last
night.”

In his turn Mr Brander looked surprised.

“Fred must be more exact in his statements,” he said; “he

must have mistaken some one else.”

And then as Philip proceeded to lay before him the papers

and explanations with which Lady Cheynes had furnished
him, the conversation took the turn of business and no
more was said about Mrs Belvoir’s dance.

But a feeling of increasing mystification was left in Philip’s

mind.
“I cannot understand my grandmother’s sudden freak last
night,” he thought. “It is sure to make people gossip,
especially if any one noticed that she and I were never
together the whole evening. The next report will be that she
and I have quarrelled—it would be no more absurd than
that Fred Brander’s story about Ella St Quentin having been
the belle of the Manor ball!”

Ella was at that moment dressing as quickly as she could,

having slept till long after her usual breakfast hour and only
awakened to be told that as her godmother wished to drive
over to Coombesthorpe for luncheon, she had no time to
spare. So her thick grey linsey frock was donned again, and
the fluffy masses of white tulle, slightly “tashed,” as the
Scotch say, but snowily pretty still, reconsigned by Jones’s
careful hands to the tray of Ella’s large basket trunk.

“It’s very little the worse,” said the maid. “If you just get
Millannie to iron it out the next time you want to wear it,
Miss, it’ll be as good as ever. It is Millannie to do it, I
suppose? You haven’t a maid of your own yet.”

“No indeed,” Ella replied. “Hester looks after me a little, and

Stevens, the second housemaid, mends my things. Mélanie
never does a thing for me; she’s always busy for my
sisters.”

“Never mind, Miss. It’ll be different when you come to be

counted quite a grown-up young lady, which will be soon
now, you’ll see. And you did enjoy yourself last night?”

“Oh indeed I did. It was—heavenly,” said Ella with fervour.

“And I do thank you so much for getting my frock ready so
beautifully, Jones. Now I must run off, I suppose.”

There was only one thing on her mind as she flew down
stairs to her godmother, but it was rather a big thing! A
most extraordinary accident had befallen her on leaving the
Manor the night before. She had lost a shoe! One of the
shoes. Clarice’s shoes—which Lady Cheynes had kept
enveloped in silver paper for more years than twice Ella’s
whole life could count, and only with much thought and
hesitation had confided to her little god-daughter for one
evening. It was really dreadful. Yet Ella could scarcely take
blame to herself.

“They were much too big—especially that left foot one,” she
said to herself. “I shall always think myself wonderfully
clever for keeping them on while I was dancing. And the
buckles are not real. I am glad of it, though I am afraid
godmother will mind quite as much as if they were.”

Should she tell of the loss at once? She hesitated. She was
not cowardly, but she was very reluctant to cause pain to
the old lady, and it was perhaps needless to do so, as there
seemed every probability that the slipper would be found. If
her godmother did not ask about them, Ella decided that
she would not speak of the shoes, and as soon as possible
she would find some way of making inquiry at the Manor.

“If Madelene and Ermine are not cross about my having

been there,” she thought, “I’ll get them to help me. They
can’t blame me when I tell them exactly how it happened—
it must have been just as I was getting into the carriage. I
remember one of the horses started a little and godmother
told me to be quick.”

Lady Cheynes seemed to have forgotten all about the

precious loan. She was in a fidget to be off, congratulating
herself on her cleverness in having prevented her grandson
and god-daughter meeting, or indeed having any suspicion
of each other’s vicinity. For she had entered into the spirit of
the mystification thoroughly, as Ermine had said, and quite
agreed with her that it would be most amusing to witness
Sir Philip’s astonishment when he should be presented to
the little lady, of whom he had so mistaken an idea.

“Don’t let them meet, if you can possibly help it, auntie, till
Phil comes over to us,” Ermine had said, to which Lady
Cheynes had agreed.

“He is very prejudiced against her, I warn you,” she had

added. “I doubt if he would ever have let himself even
admire her if they had met first in an ordinary way.”

“That’s just why,” Ermine replied enigmatically, but Lady

Cheynes asked for no explanation.

Not much was said during the drive to Ella’s home. The girl
was still a little sleepy, and rather nervous too when she
thought of the shoe. And her godmother seemed pre-
occupied and slightly absent. Only once just before they
reached the Coombesthorpe lodge, she turned somewhat
abruptly to Ella.

“Then you did enjoy last night, my dear? It was worth the
trouble?”

“Godmother,” said Ella earnestly, “I enjoyed myself,

tremendously. I shall always thank you for having taken
me, always, more than I can say,” and she held up her
pretty face for a kiss. “I do hope,” she added after a
moment’s silence, “I do hope Madelene will not be vexed
about it. She surely won’t be when she hears how it all
was.”

Lady Cheynes caught her up sharply.

“Madelene vexed,” she said. “My dear child what are you
saying? Why, how can you imagine Madelene would be
vexed?—she will have been delighted. And even supposing
she had any such feeling, which is impossible—really
impossible, she knows her duty, the respect she owes to her
father, and I may say, to myself, far too well to resent
anything we approve.” Ella did not venture to say anything
in disagreement, but in her heart she began to do her elder
sister greater injustice than ever heretofore: she began to
doubt her sincerity.

Colonel St Quentin was better, was the news Barnes met

them with, and when the ladies’ arrival had been announced
to him, he sent word that he would join Lady Cheynes in
the library in five minutes.

“You need not stay with me, my dear Ella,” said her
godmother, “your father and I will entertain each other till
luncheon is ready and you may like to get your things
unpacked.”

Ella never resented anything from her godmother, and set

off to her own room quite contentedly. A bright fire was
burning in “the nursery” to welcome her, and faithful Hester,
on the pretext of unpacking, was waiting eagerly to hear
the young lady’s adventures.

“Oh, how jolly of you to have a fire, you dear old thing,”
was Ella’s greeting. “Dear me, how strange it seems to be
back again! Hester, open my box quick and let me have a
peep at my frock before you put it away. I want to feel sure
it wasn’t all a dream.”

“Then you enjoyed yourself, Miss Ella? Indeed, I can see

you did,” said the old woman, as she carefully shook out the
“bovillonnés” which had so exercised Mrs Jones’s mind.
“Your dress isn’t—not to say spoilt, at all. It’ll look as good
as new for the next time.”
“Next time indeed!” sighed Ella, “and when will that be, I
wonder? There was a gentleman there last night, do you
know, Hester, that said I reminded him of Cinderella? But
Cinderella was luckier than I—she went to three balls, one
after the other, and—”

But Hester interrupted her. She was peering anxiously into

the trunk.

“Miss Ella,” she said, “I can’t see the fellow to this slipper
nowhere. They’re not your own, are they? At least I don’t
remember packing them up.”

Ella’s face grew grave.

“Oh dear,” she exclaimed, “I had forgotten about it. I don’t

know what to do,” and the story was related to Hester.

“You must tell Miss Madelene—Miss St Quentin, about it, as

soon as ever she comes home, and I daresay she’ll send to
inquire at the Manor. Dear—dear—it would be a pity if it
were lost.”

And the talking about it put other things out of the girl’s
head, otherwise she might not improbably have gone on to
tell Hester more details about the ball and the unknown
who had compared her to the old fairy-tale heroine.

But the luncheon-bell interrupted her gossip with Hester.

Ella found her father already in the dining-room with Lady
Cheynes.

“I’m so glad you’re better, papa,” she said, as she went up

to kiss him, her sweet face bright and eager.

“Yes, my dear. I’m glad of it myself. And you—why, Aunt

Anna, she looks like a robin-redbreast—as brisk and fresh
as can be! Not at all as if she had been dancing till I don’t
know what o’clock.”

“Gaiety suits her apparently,” said Lady Cheynes smiling.

She was delighted to see the beginning of a better
understanding between the father and child,—“and she was
a very good girl, Marcus; I must do justice to her. She
stopped dancing,—though she owned that her partner was
most attractive—resolutely, when the time came for us to
leave, and neither by word or look hinted at wishing to stay
longer.”

“That’s right,” said Ella’s father approvingly. “And what news

of Philip, aunt? Will he be turning up soon?”

“I expect to find him at Cheynesacre when I get back there

this afternoon,” said the old lady.

Colonel St Quentin brightened up still more.

“Indeed! I am very glad to hear it. We must try to have a

cheerful Christmas—Ella’s first among us too—” Ella smiled
with gratification—“Madelene and Ermie will be delighted to
hear Philip is back. You will be able to wait to see them this
afternoon?”

Lady Cheynes hesitated.

“I fear not,” she said, “the days are so very short now.”

“And Phil arriving. Ah well—tell him to come over soon.”

Ella left her father and his aunt to themselves again after
luncheon, but apparently they had not much more to say to
each other, for she was soon sent for to bid Lady Cheynes
good-bye.
“And be a sensible child, my dear,” were her godmother’s
parting words, “don’t begin fancying nonsense about
Madelene. Let her and Ermine see your father by himself
when they come in this afternoon and he will tell them all
about it.”

“Thank you, dear godmother,” said Ella.

She seemed almost to cling to the old lady as if reluctant to

let her go.

“Poor child,” thought Lady Cheynes as she drove off, “yes—

there is much good in her. She is very sweet and may
certainly be led, even though not driven. If only they don’t
all get at cross-purposes—I fear Maddie is right—it was a
mistake to separate her from them all.”

It was nearly dark when the Coombesthorpe carriage, which

had been sent to the Manor to fetch the two sisters, drove
up to their own door. Ella who had spent the afternoon in
restless Sittings about the house, unable to settle to
anything and anticipating half nervously the meeting with
Madelene and Ermine, was in the hall to receive them.

“Will you go to papa?” she said gently. “He is anxious to see

you—he is a good deal better. I shall have tea ready for you
in the library in a quarter of an hour, if that will do.”

“Yes, thank you,” said Madelene, and “That will do

beautifully,” Ermine replied more heartily.

Ella’s heart sank. She had honestly meant and wished to do

her best.

“Madelene is not going to be nice to me,” she reflected.

The truth was that Miss St Quentin was feeling both anxious
and bewildered.

“Ermine,” she said, pausing at the door of her father’s room,

“are you going to tell papa about Philip’s having been there
last night?”

“No, I don’t suppose there will be any approach to the

subject. If Aunt Anna has chosen to keep up the little
mystification till to-morrow, it would be rather impertinent
for us to interfere. And Madelene, you are not to begin
blaming yourself to papa for having, as you say you did,
spoken crossly to Ella last night. It will just worry him and
make mischief. Just let him see, as I shall, that we were
both heartily pleased for her to have the pleasure.”

Madelene sighed.

“I don’t feel—” she began.

“Oh well, if you want to do penance, apologise to Ella. She

looks very meek and mild—I fancy she is in a mood of good
resolutions, and for any sake don’t let Phil find us all at
loggerheads.”
 Chapter Twelve.
Smuts.

The interview with her father turned out satisfactorily for

Madelene. Each was suffering from inward consciousness of
having acted to some extent unreasonably, and each felt a
kind of unexpressed relief at not being brought to task.
Colonel St Quentin’s manner and tone were plainly
deprecatory of blame.

“You must not think me weak and foolish for having given in
to your aunt, when I had stood out so—well, I suppose I
must say—obstinately with you and Ermine,” he said with a
slight smile.

“Ermine and I were only too delighted for Ella to have the
pleasure of it,” Madelene replied.

“I knew that—I was assured of that,” said her father, and

then the subject was allowed to drop.

Ella was looking very demure in her grey linsey-woolsey,

waiting beside the tea-table in the library, when the two
others joined her. A smile which she could not altogether
repress, crossed Ermine’s face as the contrast between her
little sister’s present “get-up” and that in which she had last
seen her, crossed her mind.

“Oh, well, I’m not sorry to be home again,” she said aloud.
“What do you think, Ella? Would you like to have yesterday
night over again?”

Ella looked up with a half doubtful questioning in her sweet

eyes. Was Ermine chaffing her, or was this veiled sarcasm,
or what? But before she had time to form any judgment on
the matter, to her surprise Madelene interposed.

“Ella,” she said—she was standing near the fireplace, and

her tall figure in its dark winter garb looked very imposing,
though her face, had Ella seen it clearly, was gentle and
almost touching in its expression—“Ella, my dear,” she said,
“I want to say to you now, at once, that I am very sorry I
so misjudged you last night, blaming you when you did not
deserve it—when indeed you could not have deserved it; for
a moment’s reflection might have shown me you could not
have come to the Manor unknown to or unapproved of by
papa. But I was so astonished that for once, I suppose I lost
my head. Will you forget about it, and believe that I am
very happy you had the pleasure?”

“Of course,” said Ella. “I often am hasty myself—I never

dislike any one for being a little cross,” she went on,
smiling. “I’m very glad you liked me to be there. Papa was
very kind about it,” she added, unable to repress a little hit
at her sister, “he agreed to my going at once when my
godmother proposed it.”

Madelene’s face grew cold again.

“Why could you not stop at the right place, you foolish
child?” thought Ermine. But she kept her thoughts to herself
—a glance at Madelene had told her that it was best so.

Outwardly, however, things seemed most prosperously

smooth.

“Your frock looked lovely, Ella,” said Ermine. “Mélanie will be

quite jealous of Jones.”

“And it is really not spoilt at all,” said Ella, eagerly. “But oh,
Madelene, that reminds me—I had such a misfortune.”
Miss St Quentin looked up anxiously. To her nature any
appeal for sympathy always brought healing on its wings.

“What?” she said, expecting to hear of some trifling

accident. Her face expressed real concern when she heard
the particulars of the lost shoe.

“We must certainly try to get it back,” she said. “It is pretty
sure to have been picked up. Only if any dishonest servant
has got hold of it, the buckle would be a temptation; an
ignorant person would so easily mistake the paste for
diamonds—I will write to Mrs Belvoir to-morrow, Ella—it is
too late to-night—and send over a man expressly.”

“Thank you,” said Ella. “But,” she went on, “will she
understand? Did she know I was your sister, as I didn’t
come with you?”

“Of course,” said Madelene haughtily. “You don’t suppose

Ermine and I would have given any cause for gossip. We
took care to speak quite naturally the next morning about
Aunt Anna having brought you over for a little—it was all
Louis Belvoir, who Mistook your name at the first.”

“Oh yes, I see,” said Ella. She seemed on the point of

saying more, but her courage failed her.

“I wonder if they know who the man was that I danced that
last waltz with,” she said to herself.

Ermine seemed to play into her hands.

“How did you like young Belvoir, by the by, Ella?” she
inquired. “He dances well, doesn’t he? What other men did
you dance with?”
But Ella was not going to be trotted out, especially not
before Madelene, whose eyes, she fancied, and perhaps not
without reason, were fixed on her scrutinisingly.

“There were several,” she replied; “I didn’t hear all their

names distinctly. Yes, I thought Mr Belvoir danced well, but
there were one or two others who danced quite as well.”

“Oh, indeed,” said Ermine. “No one in particular, then?”

“Major Frost was very amusing,” said Ella.

Madelene, who had finished her tea, put down her cup and
turned to the door.

“We had better go up stairs and take our things off,

Ermine,” she said.

“I am afraid Ella is the reverse of ingenuous,” she said when

they had left the library. “We know she danced more with
Philip than any one. She is a regular woman of the world in
the way she can keep back what she does not choose to tell
—it would be only natural for her to ask us who he was, if
she really did not know.”

“Oh, Maddie, I don’t think you are fair about her,” said
Ermine. “And talking of not being ingenuous—she might
accuse us of it when she comes to know him. She will know
we must have seen her dancing with him, if she takes the
trouble to think it over, and our not mentioning his being
there may strike her.”

“Well, it isn’t my doing. I hate mystifications,” said

Madelene. “However as Aunt Anna is mixed up in it I
suppose it will be all right. But—no, Ermine, I’m afraid Ella
is not the sort of wife we should wish for Philip. And I’m
afraid of letting myself wish it, lest I should really be
influenced by selfish motives, for no doubt it might make
things easier.”

“You’re enough to provoke a saint,” said Ermine. “However I

don’t suppose either you or I will have much power to
‘make or mar’ in the matter. If it is to be, it will be—so far
we haven’t meddled; we didn’t originate their meeting as
they did.”

“People always take refuge in that sort of fatalism when

they want to throw off responsibility,” said Madelene. “I
don’t believe in fatality about marriages any more than
about anything else. But I shall not interfere, I am far too
uncertain of its being a good thing for Philip.”

“Maddie has had an Indian letter, and she has got a fit of
extra conscientiousness in consequence,” thought Ermine.
“If I were Bernard, I don’t think I’d stand it.”

And yet as she looked at her sister, and saw the gentle
sadness in her eyes, and noted the increasing signs of
endurance and uncomplaining patience in the delicate
features, a sort of rush of tenderness came over her. No one
better deserved to be happy than her own sweet Madelene,
she said to herself.

The evening passed peacefully. Colonel St Quentin was

pleased to have his daughters with him again, and pleased
too with himself for feeling so much more cordial and
affectionate than heretofore towards his youngest child. And
Madelene was pleased too to see him so, for jealousy
formed no part of her nature, though her exaggerated
conscientiousness and self-questioning sometimes took the
appearance of suspiciousness of others. Ella’s quick eyes
detected her elder sister’s satisfaction at her father’s
kindlier tone, and she felt puzzled by it.
“She does seem as if she wanted papa and me to get on
better together, after all,” she thought, and the idea
softened her own manner in turn. Besides this, she was,
though she would on no account have confessed it, both
tired and sleepy; the unusual excitement, more than actual
fatigue had told upon her, and she was not sorry when
Ermine, openly acknowledging that she was quite ready to
go to bed, proposed that they should all say good-night.

“It’s quite disgraceful to be so done up after such a very

mild amount of dissipation,” she said laughingly. “Philip
would make great fun of us. He is coming over to-morrow,
Maddie, you know.”

“Yes, papa says Aunt Anna left a message from him to tell
us so,” said Madelene thoughtlessly.

Ella pricked up her ears at this.

“How could—” she began, but something in the expression

of her elder sister’s face made her stop short.

“Ah,” she reflected, “Madelene said that by mistake. They

didn’t want me to know that precious cousin of theirs was
coming. I shall hate him for being their cousin and not mine
—only he is dear godmother’s grandson, and I should like
him for that. Godmother must have had a letter from him
while I was there, I suppose. She might have told me of it.”

And a feeling of resentment to Lady Cheynes too, mingled

with her indignation against her sisters. Her “good-night”
was correspondingly cold, but they did not seem to notice
it.

“I will write a note to Mrs Belvoir to-night, Ella,” said

Madelene in a low voice, as they were leaving the room, “to
have it ready for to-morrow morning, so that one of the
grooms can take it over quite early and wait for an answer.”

“Thank you,” said Ella, and for the moment she felt really
obliged. The lost slipper was weighing a good deal on her
mind, and she began to think that after all she would feel
rather foolish if obliged to confess to her godmother how
she had lost it.

“She will certainly say I should have found it out before I

got into the carriage, but I quite thought it was among the
rugs—and Jones looked herself for me, this morning. I think
it must have slipped off just as I stepped in and rolled out
before they shut the door.”

And her dreams were haunted by the slipper. She thought

Madelene came down to breakfast next morning with it tied
on to her head as an ornament, and that it suddenly
skipped on to the floor all of itself, and became a wonderful
white satin chariot which careered round the room drawn by
six cats, while on the box sat her partner in her last waltz at
the Manor, shouting at the top of his voice that he was
going to take a note to Mrs Belvoir first thing in the
morning, and to wait for an answer. And these words “wait
for an answer,” seemed to mingle themselves fantastically
with all the consciousness of her sleep. Or perhaps it
seemed so to her, for they were the first that fell on her
ears as she began to awake next morning. The door was
opening and some one just entering was speaking to
another person outside.

“Yes,” said the voice—it was old Hester’s—“wait for an

answer—be sure to tell him.”

“What are you talking about?” asked Ella. “What is it about

waiting for an answer?”
“It’s the message for the groom, who’s going to the Manor,
Miss Ella,” Hester replied. “Miss St. Quentin gave me the
note last night, and I was telling Stevens. She’s so sorry for
you to be uneasy about the shoe—‘taking off the pleasure of
her first little treat, poor child,’ was her words to me, Miss
Ella.”

“It’s very kind of her,” said Ella sleepily, with again the
return upon herself as to her judgment of her sister.
Suddenly a new idea struck her. “Hester,” she said, “what
sort of person is Sir Philip Cheynes? Is he nice, or is he
conceited and stuck-up, and—flirting, you know—that sort
of a man?”

“Bless you, no, Miss Ella, not as ever I’ve heard tell. What’s
put such a notion in your head? If he was stuck-up, he’d not
be so to his own cousins; and he does think all the world of
them, that he does. And as for being a flirting gentleman,
he’d be uncommon clever to get Miss Maddie or Miss Ermie
to join in such like nonsense, though by what I hear
sometimes, young ladies—and young ladies who think a
deal of themselves too—is not so partickler as they might
be, now a days. I don’t hold with that tennis-playing, Miss
Ella, and all that sort of apeing gentlemen, as seems the
fashion.”

Ella laughed.

“Tennis is very dull, I think. I shouldn’t like to spend several

hours a day at it,” she said.

“Sir Philip is evidently a prig of the first water,” she decided

mentally. “But if so, he’s not likely to admire me, so why do
they want to keep me out of his way, as I see they do? And
they have got god mother to join them in it for some
reason.”
Ella’s inward indignation sent her down stairs to breakfast in
anything but a genial mood. And, as her moods were very
apt to do, it found its expression in her outer woman.

“You do look so grim, Ella,” said Ermine. “I am so tired of

that linsey-woolsey frock of yours—couldn’t you put a bit of
scarlet about yourself somewhere? Even a red tucker would
be an improvement.”

Madelene glanced at her younger sister as Ermine spoke.

“You might wear your sailor serge every morning now, I

think, Ella,” she said. “That frock is getting shabby and it is
a dingy shade. You remember we couldn’t get the grey we
wanted. About Christmas time too, one likes to see people
looking bright.”

Ella surveyed her garments with a half indifferent air that

was rather irritating.

“I think it does very well,” she replied. “Even aunty thought

two new winter frocks enough. I don’t see that it matters so
long as it is warm, and indeed to tell the truth, I like this
better than my Sunday frock; it is so clumsily made.”

Madelene said no more.

“Every step forward seems followed by two backwards with

her,” she reflected. “Ermine had better not build any castles
in the air about her and Philip—if she had the slightest
suspicion that we should like such a thing, it would, I do
believe, make Ella detest him.”

“I have sent over to the Manor, Ella,” she said as she rose
from the breakfast-table; “the groom should be back by
half-past twelve or so, as Mrs Belvoir is sure to be at home.
I am sure you are feeling anxious about the poor little
slipper.”

“I am,” said Ella. “Thank you, Madelene.”

And indeed it was partly distress of mind about the lost

property which was making Ella indisposed this morning to
take a roseate view of life.

“The weather seems really settling in for frost,” said Ermine.

“After the rain it will make the roads very slippery. I hope
the frost will last till after Christmas, now it has begun. I
wish I could go a good long walk this morning, but I fear we
mustn’t think of it—eh, Maddie?”

“No—there are arrears of things to see to even after being

away only two days,” Miss St Quentin replied. “You might
get Philip to take you a walk after luncheon, when I go to sit
with papa.”

“And Ella too,” Ermine added. “Would you like a nice long
walk, Ella? It would be a pleasant variety to have an escort
for once.”

“No, thank you,” said Ella, stiffly, though in her heart she
thought Ermine much kinder than her elder sister. “I don’t
care for walking in the afternoon. I shall go out after I’ve
finished my practising this morning.”

“Not alone, Ella?” said Madelene; “or at least if you do go

alone, it will not be further than the grounds, I hope?”

“No,” said Ella, “I don’t mean to leave the grounds.”

She spoke more amiably—for this sort of authority or

interference on her sister’s part did not irritate her, as it
might have done some girls. She resented nothing which
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