Expertspeak at India Reports: Legal Process Outsourcing and Legal Aspects of Outsourcing to India

Expertspeak at India Reports gives you an opportunity to ask questions, get answers and gain insights from our thought leaders. We are eventually planning to address a range of strategic and operational issues on various aspects of doing business in India

ExpertSpeak: Legal Process Outsourcing and Legal Aspects of Outsourcing to India
If you have questions on Legal Process Outsourcing to India or Legal Aspects of Outsourcing to India, get them answered by K. Satish Kumar, a leading member of the legal profession in India. Get a chance to discuss important issues and opinions with our expert and others interested in the same subject. Your questions and answers will be published on this page.

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Q: How do we ensure that we are dealing with an offshore service provider who can manage my project requirements effectively?
You should evaluate your offshore development partner/service provider before starting the venture. A few things that you need to watch out for with regard to the provider's repertoire of offerings are aspects related to the requirement document, a development methodology, clear and excellent communication channels and the skill to understand and think ahead of a business model. A service provider offering programmers on Full Time Engagement (contract basis) is also a good bet.

Q: How can I outsource to an Indian technology company without even meeting them?
Indian Internet IT service companies (software and web developers) are considered a viable outsourcing option today. What they offer is a strategic initiative to cut costs as well as provision of access to intellectual capital, which may not be available in-house. Virtual web companies are a natural outgrowth of the omnipresence of the Internet. But is the company in concern just a web page or does it comprise a team of people who follow established processes and possess a solid infrastructure? You need to understand all these and various other queries. Meeting the technology company and its officers can happen over a period of time.

Q: Who should consider outsourcing and why?
Just about everybody: from entrepreneurs in the SOHO (small office home office) segment to small and medium enterprises (SME) and to even large businesses and empires with diversified interests and varied business processes. Every business benefits hugely through outsourcing because technology is changing so fast, it has to be leveraged and used to the maximum to deliver competitive advantage to a company.

Q: What are the implications involved in outsourcing? How do I manage outsourcing relationships?
Surveys and studies have proven that more than 90% of Fortune 500 companies outsource a certain part of their operations. In the face of such clear indicators, why would some organizations hesitate to outsource? The answer could lie in the bad experiences with previous outsourcing attempts. There are many issues that need to be addressed before choosing an outsourcing partner. Moreover, once the developer or service provider is selected, it is not enough to sit on one's heels and assume that the outsourced projects would just work fine. Understanding outsourcing relationships is primary to the success of a project.

Q: Are there any legal issues in offshoring? What precautions do I need to take?
The world is becoming a global village. The business rules and legal issues are common across the borders. You need to ensure that the offshoring company has a good corporate governance policy and complies with all the legal requirements in India.

Q: Why is India leading the offshoring market ?
India is the leading destination for offshoring services. The proven track record and client relationships of established Indian IT service companies, favorable wage differentials, and large, high-quality, English-speaking talent pool are driving India's emergence as a global outsourcing hub.

However, what makes India unique is its education system, which generates 200,000-250,000 engineering and computer science graduates and more than 2 million other graduates, most of whom speak very good English. According to a NASSCOM-McKinsey report, India's business process outsourcing (BPO) industry is expected to grow to more than $21 billion by 2008. Revenues from the export of India's BPO services are expected to increase from 19% in 2002 to 27% by 2008, as a proportion of the total revenues from export of IT services from India.

Various tax incentives are stimulating India's BPO industry. The Indian government has provided a ten-year tax holiday for IT service companies in 2000. As a result of this tax break, the effective tax rate for most of these companies was reduced from the normal 36%-plus to around 15% currently. For export-oriented firms this rate effectively is 0%.

Q: What types of offshoring operational models exist?
Three main types of operational models exist:

• Captive processing centers,
• Third-party providers, and
• Joint ventures (build, operate, and transfer).

Captive centers undertake business processing only for their own multinational businesses. Some examples include HSBC (Hyderabad), American Express (Delhi), British Airways (Mumbai), Citibank (Chennai), and Dell (Bangalore).

The second operation model is called a third-party provider. Third-party providers supply outsourcing services to other companies. They resemble Internet software service firms that complete IT systems setup projects for various companies. Some examples of these companies include  MsourcE, 24/7, Spectramind, and Daksh.

The third operational model often used in offshoring is the joint venture (JV) model. In a JV, often called a build, operate, and transfer model, two entities own the operation.

Q: Which law will be followed for any cross border transcations in India?
Any cross border transaction between two legal entities will be governed by the Agreement that the parties have executed. It will go as per the governing law agreed in the document. However, it is also important to note the "place of action". The Agreement should not contradict any law governed by the place of action. Let me give you an example to make it more clear. Suppose, a United States entity outsourcing their call centre operations to an Indian entity, the governing law will be as per the Agreement. However, since the place of action is in India, there should be no activity which is intra vires the laws in India.

K. Satish Kumar, an attorney by profession, brings with him the experience of having worked in software firms for over 15 years.  Presently, he is heading the Legal division for a major Information Technology Company. His core responsibilities are Software Business Contracts including Licensing Contracts. He has experience in handling critical issues of Intellectual Property Rights, Source Code and Escrow among others Read More

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