Is Outsourcing IT to India a Threat to National Security?

The United States and Canada have been outsourcing IT to other countries for some time now, but with increasing concern about cyber security and trade deficits, questions are being asked about whether it’s something we should curtail.

US companies have been given free reign to manage IT and cybersecurity any which way they like. The question is, can US/Canadian/European companies protect threats to national security?  If there primary commitment is to save money, how can we expect them to be objective and responsible? And there is more at risk here than data breaches and brand damage.

It’s my contention that companies must bring IT back home and take cybersecurity seriously.  As Trump raises tariffs, the attacks on digital infrastructure will likely accelerate.

Let’s cut to the facts presented by PWC in this chart in their major report. It shows a survey of large companies with more than $10 billion in revenue, companies that are better protected than SMB’s.

And in this chart, we see the costs of breaches rising, particularly with India companies.

Generative AI represents an additional layer of threat yet the survey shows companies may be moving into it unprepared. 

The Well-Invested Rise of India in Computing

India companies have improved most aspects of their services to appease foreign customers but the downside of using them and neglecting homegrown solutions has to be addressed.

Is Corporate America’s preference for India outsourcing and over-confidence going to lead to a significant international incident?  Moving forward to more complete dependency on India could make the US, Europe, and Canada vulnerable to loss in future. When IT decisions are made in India, they are not being made in America.

If we continue down this path to having India run Europe/America’s IT systems, are we unwittingly waltzing into something catastrophic in cost and national security?

In this post, let’s look at the practice of outsourcing IT services and processes to India, and the many ways the US, Canada and Europe are exposed to legal tangles, business loss, and national security threats.  We need to ask not only about the long-term damage to our economies and workforces, but also about how our national infrastructures are at risk in the way India conducts its business in accordance to its own national laws.

Trade Deficits with India Becoming More Problematic

While goods and service trade deficits with Mexico and China are a big concern, Census.gov reports show the US’s deficit in trade and services with India has reached more than $40 billion per year. With China becoming more expensive to work with and their extreme espionage, intellectual property and military threat, multinational companies such as Google and Microsoft have instead heavily invested in India where they can get coding and computing infrastructure cheap.

While corporations such as Google, Facebook, Amazon, and Microsoft claim they are cash-strapped and must outsource to India, this habit of offshoring everything leads to a weak labor market in the US.  Eventually, it becomes a threat they can’t solve.  As we’ve witnessed with China’s espionage related hardware and software incidents, India is a sovereign nation which will serve itself first.

Outsourcing sends hundreds of hundreds of billions of dollars out of the US and Europe thus weakening our economies and reducing badly needed tax revenues.

Massive Foreign Direct Investment and Outsourcing Revenues

Like China and Mexico, India continues to benefit from this massive infusion of investment cash from the multinationals and smaller US, Canadian and European countries.  And with its rising income, it’s also gaining access to IT patents, business processes, and business intelligence which it can use to outcompete US IT providers offering similar services.

Indian companies also provide cheap call centers, accounting, finance and marketing along with manufacturing and production services.

India’s advantage is primarily its low-cost labor and ability to handle large IT projects with some reliability. In terms of cybersecurity which is becoming a big matter, IT centers in the US could be compromised and lead to damaging, crippling attacks on US digital infrastructure.  From power grids to government secrets to ecommerce systems, the threats from online attacks is substantial every year.

Each year, American companies outsource to Indian IT companies while not being familiar with the provider’s executives, IT staff backgrounds, or being fully aware of the company’s activities.  It’s all based on blind faith. They may actually apply stricter standards to US and Canadian companies.

Exposing US and European economies and infrastructure via India is worrisome.  Here are some issues to consider:

• India’s legal compliance to international standards is questionable
• a US/India trade and tariff war exposes US companies to losses
• possibility of unauthorized access to sensitive information if proper security measures are not implemented by the outsourcing company
• their network of unvetted, low-cost subcontractors could introduce additional points of potential security weaknesses
• a 2023 report found that due to extensive attacks, 67% of Indian enterprises intended to outsource key areas of their security landscape to security service providers (MSSPs) which further extends the risks to US, Canadian and European companies
• vulnerable to increasingly sophisticated cyberattacks, potentially exposing sensitive data belonging to US and European companies.
• legal contracts are difficult if not impossible to enforce and would be costly to do so
• India’s growing IT infrastructure assumes the US and Europe will offshore even more of their IT needs to them thus increasing vulnerability to a foreign nation.
• US companies have been using India’s cloud infrastructure thus US data is severely exposed or there are misconfiguration of cloud infrastructure
• The use of cryptocurrency on India’s cloud infrastructure extends the threat to the banking system
• India’s increasing use of AI poses issues of errors and out-of-control processes which their IT people struggle to comprehend or fix
• Conflicts and blocking of Chinese products has made Indo-Chinese relations tense and the prospect of future cyberattacks on India’s key infrastructure adds risk for US companies.
• software and ecommerce companies in the US/Europe rely on Indian design and operations for their SaaS solutions but might find software and service quality and cost issues spiraling out of control.

Pro-America Economics Means Reducing Offshoring IT Costs

From the standpoint of the Trump Pro-American perspective, India is enjoying unfair trade practices. If Canada can face 25% tariffs, why should India enjoy zero tariffs?

India’s currency the Rupee is consistently losing value despite the fact it enjoyed trade surpluses and rising demand for good and services. Now as foreign investment in the US is growing fast, the Rupee is likely to fall further in value, giving Indian companies an unfair currency advantage.

Should President Trump be focusing on India and apply tariffs and restrictions to discourage outsourced IT?

India has been politically stable and non-aggressive and there are few reports of patent infringement and theft, however, as its economy begins to shrink (as it is), will the risk rise out of control?  Could essential data be leaked to Russia or China? Can India defend large scale cyberattacks from Iran, North Korea, Russia and China?

Doubts Can Save a Country

I think the above discussion creates enough doubt about this reliance on foreign countries and that even though stable and well meaning, they are vulnerable to threats that we can’t control. It’s only a matter of time before a critical event occurs in India, as increasing attacks on its infrastructure take place.

A wiser decision from President Trump will be to repatriate and onshore technology services so the US can reduce foreign dependence, control threats and fend off rising costs. IT is at the core of everything in the US economy (and Canada’s and Europe’s) so looming issues will be more costly to deal with in the years ahead.

President Trump is faced with decisions on trade with all nations, even friendly ones. Light will be shone on this issue from many directions, and at some point a ruling on outsourcing risks to India will need to be made.