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What You Should Know About Cross-Border Data Transfer Laws When it Comes to Outsourcing

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Summry: Data protection is crucial for organizations, serving as the lifeblood for effective AI solutions and business decisions; understanding and complying with cross-border data transfer laws is essential, with considerations including industry-specific regulations, the nearshore approach, thorough research, the use of synthetic data for privacy, and careful questioning of outsourcing partners.

Data protection is becoming as vital to organizations as the very data itself. In fact, most organizations would be at a stand-still if they were not able to access their data. It’s the fuel to effective AI solutions, product development and the driver to business decisions. But what happens when your service provider is not able to receive that data because of cross-border data transfer laws?

As a nearshore service provider, this topic has been on my mind lately.  I wrote about it in an article for KM World; and I discussed it with Nearshore America’s for a feature story they wrote on the topic. 

Whether you’re a U.S. company looking to outsource your critical IT project to a service provider, or a European company looking to outsource manufacturing work to China, it’s imperative to understand the various data transfer regulations of your industry and country.

One of the most comprehensive federal laws is the Health Insurance Portability and Accountability Act (HIPAA) for healthcare data; and the Gramm-Leach-Bliley Act (GLBA) for financial institutions. These laws require organizations to protect the privacy and security of sensitive data, and they often restrict the transfer of data outside of the country.

Additionally, the U.S. government has export control laws, including the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR), which regulate the export of certain types of data and technology considered critical to national security. Companies in regulated industries need to ensure they comply with these regulations when sharing data with outsourcing partners abroad. And, the Department of Defense (DoD) has specific requirements for contractors handling defense-related information.

Given the complex rules around sharing data – if it’s possible at all for certain countries –


it’s important to understand the specific requirements of the region you may be outsourcing a project to. As I shared with both Km World and Nearshore Americas, below are best practices to ensure regulatory compliance, as well as a successful outsourcing partnership.

Consider the nearshore approach: When transferring data outside the country is not an option, a good way to outsource IT projects is to work with an outsourcing partner in your own country. Nearshoring to Puerto Rico, for example, provides U.S. organizations with the best of both worlds, world-class IT experts and an outsourcing partner to handle your projects, while following all the same rules and regulations, since it’s a U.S. territory.

Do your research: When considering outsourcing as a viable model, conduct extensive research and fully understand the requirements and regulations of your industry, your country, and the countries where you may be doing business . Often legal teams and consultants can be good partners to help you ensure compliance.

Use synthetic data for data-driven projects: For machine learning and other AI projects that require lots of datasets, synthetic data that is artificially generated, helps you avoid data-privacy issues, since it does not use real-world personal data, but still can be used to effectively train solutions.

Ask the right questions of your outsourcing candidates: Before selecting an outsourcing partner, you should be aware of their data transfer regulations and restrictions, and inquire about their data protection policies and protocols. Ask where they store data, how they manage data –  and as importantly how they destroy data when the project ends.

Today, data is the lifeblood to every business action. It pays to understand where and to what extent you can share that data with business partners – who may be in other regions of the world –  to not only remain compliant, but also to best leverage one of your most powerful assets.

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