Legal Issues to Consider Before Off Shoring
Bhumika Ghimire
March 26, 2006
Off shoring involves two companies in two different countries, so it takes a good management strategy and preparation to deal with two sets of laws and regulations.
There are international laws to govern trade among two nations but most of the time it is a long process to resolve any dispute. So for a company it is always a good idea to employ the local laws. The United States has fairly explicit laws and regulations for a wide range of issues but the there are countries where religious laws govern even trade and business practices. For example, in Islamic nations you cannot charge interest in money lent and there are regulations regarding prayer schedule and religious observations in the workplace. Then there are nations that do not have a working legal system designed to keep up with the changing demands of the global trade.
To have a smooth operation in the offshore destination, a company should keep its team aware about the difference in the legal system and devise a management plan to deal with it. Having an in-house legal team, with local attorneys is also a good way to go. With regard to the difference in legal systems, in Nepal the copyright law was enacted in 1965 and has not been updated since 1997. It lacks provisions on various new technologies that have to do with web content, e-book publishing, CD rights, etc. A US company seeking to do business in Nepal has to have a plan to protect its intellectual property, keeping the outdated law in mind. To read more on Nepal’s copyright law, please visit: Nepali Copyright Law
Some of the major legal issues faced by a company include the following:
Contract: The Company has to be aware of the contract laws of the host nation, clauses for claiming damages and remedies available. While drafting a contract with a company for an off-shore destination, it is a good idea consult a local lawyer specializing in business law, so that proper provisions are made in the contract to prevent any future problems.
Copyright and patent: In many parts of the world copyright and patentd are still very new concepts and many don’t have any regulations to protect them. Before entering to any long-term relationship a company has to make sure that the host country has laws to protect its copyright and patents. It is interesting to note here that until 1992-93, China did not protect chemical or pharmaceutical inventions, believing inventors should freely share such inventions. (D’Antico, 2003). For more on the Chinese Patent Law, please visit: Chinese Patent Law
Labor laws: Labor laws are very important if the company is going to hire local people. It has to be aware about the working hours, minimum payment, and laws against discrimination. For example, in Saudi Arabia the law states that in the month of Ramadan (Islamic holy month of prayer and fasting) the actual working hours shall not exceed six hours a day or thirty-six hours a week, exclusive of the intervals reserved for prayer, rest, and meals. For more on Saudi labor law please visit: Saudi Labor Law
Bribes, gifts and undue influence: In some parts of the world, especially in Asia, gift-giving is part of common courtesy, and in some places bribes are the only means to get through the red tape. A company has to make sure that their action does not cross legal boundaries because even in place where a bribe is socially accepted, they nevertheless have laws against it.
In conclusion, before a company decides to offshore to a particular nation, it is very important that the nations’ legal system is researched and proper planning done by the management. Hiring a local lawyer to advise the company, training the home employees about the local system and also, communicating to the local employees about the system back home would help the company in long run.
Sources:
http://www.whdlaw.com/admin_uploads/internal_publications/insiderspring2003.pdf
http://www.bellagiopublishingnetwork.org/newsletter26-27/pradhan.htm
Copyright: Bhumika Ghimire,2006.
There are international laws to govern trade among two nations but most of the time it is a long process to resolve any dispute. So for a company it is always a good idea to employ the local laws. The United States has fairly explicit laws and regulations for a wide range of issues but the there are countries where religious laws govern even trade and business practices. For example, in Islamic nations you cannot charge interest in money lent and there are regulations regarding prayer schedule and religious observations in the workplace. Then there are nations that do not have a working legal system designed to keep up with the changing demands of the global trade.
To have a smooth operation in the offshore destination, a company should keep its team aware about the difference in the legal system and devise a management plan to deal with it. Having an in-house legal team, with local attorneys is also a good way to go. With regard to the difference in legal systems, in Nepal the copyright law was enacted in 1965 and has not been updated since 1997. It lacks provisions on various new technologies that have to do with web content, e-book publishing, CD rights, etc. A US company seeking to do business in Nepal has to have a plan to protect its intellectual property, keeping the outdated law in mind. To read more on Nepal’s copyright law, please visit: Nepali Copyright Law
Some of the major legal issues faced by a company include the following:
Contract: The Company has to be aware of the contract laws of the host nation, clauses for claiming damages and remedies available. While drafting a contract with a company for an off-shore destination, it is a good idea consult a local lawyer specializing in business law, so that proper provisions are made in the contract to prevent any future problems.
Copyright and patent: In many parts of the world copyright and patentd are still very new concepts and many don’t have any regulations to protect them. Before entering to any long-term relationship a company has to make sure that the host country has laws to protect its copyright and patents. It is interesting to note here that until 1992-93, China did not protect chemical or pharmaceutical inventions, believing inventors should freely share such inventions. (D’Antico, 2003). For more on the Chinese Patent Law, please visit: Chinese Patent Law
Labor laws: Labor laws are very important if the company is going to hire local people. It has to be aware about the working hours, minimum payment, and laws against discrimination. For example, in Saudi Arabia the law states that in the month of Ramadan (Islamic holy month of prayer and fasting) the actual working hours shall not exceed six hours a day or thirty-six hours a week, exclusive of the intervals reserved for prayer, rest, and meals. For more on Saudi labor law please visit: Saudi Labor Law
Bribes, gifts and undue influence: In some parts of the world, especially in Asia, gift-giving is part of common courtesy, and in some places bribes are the only means to get through the red tape. A company has to make sure that their action does not cross legal boundaries because even in place where a bribe is socially accepted, they nevertheless have laws against it.
In conclusion, before a company decides to offshore to a particular nation, it is very important that the nations’ legal system is researched and proper planning done by the management. Hiring a local lawyer to advise the company, training the home employees about the local system and also, communicating to the local employees about the system back home would help the company in long run.
Sources:
http://www.whdlaw.com/admin_uploads/internal_publications/insiderspring2003.pdf
http://www.bellagiopublishingnetwork.org/newsletter26-27/pradhan.htm
Copyright: Bhumika Ghimire,2006.
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