Legal Issues of Offshore Outsourcing given to Software Outsourcing Companies in India - Part 1

With the rise in outsourcing and a number of global organizations opting to outsource business processes and IT services to software outsourcing companies in India, it has invited a number of legal issues in outsourcing. If the organization opts to outsource to India, the organization should aware itself of the intellectual property protection and the data privacy and protection in India. Prior to opting for outsourcing to outsourcing company in India, the organization should also assure that they know about compliance, which are applied with Indian laws, the existing contractual and legal rights in India and dispute resolution procedures.

Offshore outsourcing involves the risk of potential applicability of foreign jurisdictional law to the outsourced activities. For example, a company located in California may decide to outsource its back office processing function to a service provider in an offshore location such as to a software outsourcing company in India. Such arrangement may involve sending personal information of California customers to the service provider’s data center in the United States. The data may be backed up in UK and processed by the service provider in Asia. This process involves different countries which may have different approaches to privacy and the requirements of each jurisdiction need to be considered. In order to make this process functioning as a smooth one, the companies engaging in offshore outsourcing need to consider how foreign data privacy laws or regulatory requirements will interact with the domestic privacy laws and regulations and how if any possible conflicts arises will be managed. This shows countries have started to work in a heterogeneous environment irrespective of any geographical boundaries. But the major concern is that many countries are yet to mold their legal environment to suit the demands of this global revolution. Currently, both the client and the service provider face many legal and business issues in the offshore outsourcing business. Thus, we will be looking into certain legal issues that arise while offshore outsourcing.

1. Heterogeneous Legal System:

In any offshore contract at least two entities adhering to two different legal systems are involved. With the change in geographic boundaries, the rules of governance and justice are also subject to change. Therefore, heterogeneity in the legal system raises a major legal issue as it generates ambiguities in the perception of the concerned entities. This is because there is an absence of a common legal system, which applies globally and so it may happen that offshore outsourcing business fail to generate the feeling of faith. Laws regarding treatment of Intellectual property differs from country to country. This may restrict few organizations to disclose their Intellectual property as they fear that it might get misused. Certain countries have started taking these issues seriously, but still are short of generating standardized legal rules and regulation. Another concern which is of major concern is the legal issue dealing with technology patents. Ensure that place of jurisdiction is clearly mentioned in the contract and agreement.

2. Dispute Settlement in offshore outsourcing:

Another legal issue is the issue related to dispute settlement. Suppose, a client in New York wants to sue a service provider or the software outsourcing company in India. The question arises as to where he should file the case. For instance, if the case is filed in New York then the service provider will disagree as he has to come down to New York to fight the case in a different legal climate. And if the client files the case against the outsourcing company in India, then the client needs to come down to India and fight the case under their legal systems. In both situations, the applicable legal laws will change. Situations such as these gives rise to questions such as to in which legal system to apply for settlement in case of dispute? Which legal provision will the entities follow during the execution of the contract? Thus the lack of commonly accepted grievance procedure creates a major legal hurdle in offshore outsourcing. Therefore it is advisable that all the offshore contracts should specifically highlight the system of dispute settlement. Dispute resolution clauses and terms should be defined in the contract and agreement.