Commercial disputes exist in international outsourcing. However, it is not possible to ignore the services of a BPO company. Setting up a viable dispute resolution mechanism is what is important.

1. Managed Outsource Solutions
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www. managedoutsource.com
Disputes in International Outsourcing

2. Commercial Disputes in International Outsourcing
The main reasons why firms look for international outsourcing are reduced
cost of operation, greater efficiency, and greater focus on core activities. The ability
to stay up-to-date with the latest business models/technology and the flexibility to
change with varying market trends make the outsourcing model much more
appealing.
Despite the desirable benefits, there are less than desirable challenges that also have
to be faced. Recently, Reed Smith, a global law firm in association with the
Economist Intelligence Unit (EIU) conducted a survey of executives on a global scale.
The study found that one in four companies was involved in an international
commercial dispute in the short time span of the past two years. The main reason for
such a dispute is incorrect interpretation of agreements, which would eventually lead
to contract breaches.
Reasons for International Commercial Disputes
The prime reason for international commercial disputes are technology and
intellectual property (IP) rights clauses. This fact is underlined by a recent survey
conducted by ASIS International, which claims that the total value of stolen
corporate IP is approximately 1 trillion US dollars on a global scale.
All at once, different countries adopt different approaches to Intellectual Property
laws. This issue is applicable not only in developing countries, but also in developed
countries such as the United States. Moreover, 35% of companies that was not in
the midst of any dispute (according to the EIU survey report), anticipated IP theft as
the most likely cause of disputes that they may face over the next two years in the
BRIC markets.
When the contracts get more and more convoluted, chances of misinterpretation
increase manifold. Some of the IP disputes that occurred in the recent past are the
dispute between Ericsson and H3G, and the case between BSkyB and EDS/HP, which
ended in a payment of 318 million pounds in damages alone.
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3. Mitigating the Impact of Disputes
As the risk of disputes cannot be avoided, proposing ways to mitigate its impact is
more important for companies (especially before signing contracts). The first
step that can be taken to address this is to decide the court where the case
will be heard. The host country’s court is usually where it would be heard.
But, this might not be a satisfactory solution, as IP rights jurisdiction is fairly
weak in popular destinations for outsourcing such as Mexico, China, and
Russia. Anyway, India still remains an important outsourcing destination as
its legal system is based on the English common law.
A solution to this problem is to specify which country’s laws and jurisdiction are to be
followed in the contract. New York law and English law are often regarded as
standard in global business contracts. The law advocates forum shopping or
specifying that the contract is governed by the law and courts of a different
jurisdiction. In fact, this solution is also not free from pitfalls. If the case
lacks sufficient connection to the given jurisdiction, then the court may
refuse to hear it. At the same time the host country’s courts may often lack
the necessary expertise to consider the dispute from the perspective of a
foreign law. Choosing a forum that you feel is more adequate may not
always provide the results you are looking for because implementing the
judgment in the host country may prove difficult.
Arbitration—an Effective Alternative
Apart from the alternatives mentioned above, another possible option to fix
outsourcing disputes is arbitration. Here parties have the flexibility to select the legal
or non-legal standards in settling disputes. In arbitration, the case may be heard by
an industry expert or a retired judge with sufficient experience in handling such
issues. This is a beneficial alternative as it ensures considerable savings in terms of
time and money. Here are two other advantages offered by this alternative.
• The details of the case can be kept confidential, which is not possible in the
case of court hearings. The involved parties can maintain the confidentiality of
their sensitive information. Most importantly, the dispute itself can be kept
secretive.
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4. • The problem of enforcement can also be solved via arbitration. Today, the
New York Convention governs over 150 jurisdictions across the world, which
enables quick and effective enforcement of the arbitration decisions.
However, this alternative is not without its own disadvantages. The main
disadvantage of arbitration is that it is harder to implement in areas where the
mechanisms allowing arbitration do not exist. Examples of such areas include Latin
America and Africa. Despite the situation, parties try to settle their disputes through
organizations, such as the Chamber of Commerce or the London Court of
International Arbitration. Anyway, the growth of bilateral investment treaties (BITs)
has saved the situation to a great extent, as it acts as an alternative mechanism for
dispute resolution.
How to Choose a Dispute Resolution Mechanism
In this era of IP rights, companies must be aware of the risk of disputes, when
signing agreements or drafting contracts. Certain factors as well as guidelines should
be followed for selecting the best resolution mechanism. The nature of the parties,
the jurisdictions involved and the subject matter must be considered while selecting
the dispute resolution mechanism.
If arbitration is chosen as the dispute resolution mechanism, it should be backed by
adequate procedures for initiating the process. This will help the company get a stay
order on court proceedings with ease and ensure confidentiality to cover up the very
fact of the existence of the dispute.
These measures cannot ensure complete elimination of the risk of outsourcing
disputes. Nevertheless, in this modern global market, you cannot ignore the services
of BPO companies, simply because of the risk of a dispute. Take care to minimize
the risk associated with disputes, by setting up a dispute resolution mechanism
appropriate to the particular transaction.
www.managedoutsource.com (800) 670 2809