A VIEW FROM INDIA
29 January 2001
Is India the new Japan? This question will raise a wry smile from lawyers who have worked on India-related matters over the past 10 years. In 1991 India announced deregulation and reform to open up its economy. The first flush of enthusiasm, which saw Western businesses, including law firms, rush to take advantage of India's huge potential, gave way to disillusionment as projects became mired in controversy and investment became entangled in red tape. The Indian economy did not grow as anticipated and the bureaucracy condemned many projects to death.
In India's defence, 10 years is not a long time for a billion-person behemoth of a country like India to turn its economic structure around. India is a democracy, and decisions cannot be made at the stroke of a pen; sometimes the process is lengthy.
For UK lawyers, India's legal system is a plus. It is firmly rooted in English common law. Indians tend to look to London for expertise, and it is to England or the US that its children go for post-graduate training.
India has invested heavily in the education of its middle class. While the Indian diaspora has seen those from that country take up leading positions in the arts and in literature, it is in technology and finance and particularly in the new economy businesses, that well-educated Indian expatriates are making their presence most strongly felt.
Will India be the new Japan? Comparisons of this sort do not bear close scrutiny, but there are parallels. In the 1950s, Japan was a closed society battered by a world war, eking out a living producing trinkets. "Made in Japan" was a byword for tat. Then the age of electronics arrived and the Japanese aptitude and skill in exploiting the commercial potential of electronics enabled it to leapfrog others to become a First World economy. Can India do the same on the back of IT?
Despite their undoubted technical skills and their wider creative and management skills, Indian companies have not yet been fully tested. To date, most contracts they have won have involved only the execution of specific customer requirements at low cost, or sheltering under the wing of one of the Western big-hitters. Indian software companies recognise that to become world players they must move into project management, consultancy, software creation and outsourcing to compete with the IBMs of this world.
Indian software companies will need to be aware of their legal rights and obligations for the jurisdictions in which they will be operating. When following the detailed specifications of the customer, intellectual property (IP) rights and the limitation of liability have not been major issues. In the next phase, these issues will need to be addressed in their contractual arrangements. Technical wizardry and keen pricing will not be sufficient.
Lawyers can help to avoid the problems by preparing contracts and establishing IP protections. If Indian software companies are to achieve their ambitions without serious legal difficulties, they must begin to regard the lawyers as a necessary part of their ongoing business.
However, Indian law firms still observe the 20-partner limit, and very few Indian lawyers have developed the expertise for software companies as they move into international markets, thus entering into major contracts, creating IP, issuing alternative dispute resolutions, acquiring businesses and establishing subsidiaries.
Indian lawyers will develop these capabilities, but at present they are not in a position to service these new world-beaters. Furthermore, not only are foreign lawyers forbidden to practise Indian law alone or in joint ventures, but they are also not permitted to practise foreign law. This will eventually change, but it is likely to be several years before it does.
India remains a market of great potential, but it will not be rushed.
Lynn McCaw is a corporate partner and head of the India group at Denton Wilde Sapte.