The practice of engaging an external organization for performing in a country where the products or services are not developed or manufactured is termed as “Offshore Outsourcing”. The business is performed by a foreign country in a foreign country. Sending work overseas with higher wages reduces the country’s own domestic employment and domestic investment. In countries like United States and United Kingdom the customer service jobs and jobs in IT sector have been or are potentially affected.
COST – not the only reason for offshore outsourcing
It is definitely one of the main reasons for offshore outsourcing but there are other reasons as well. When it is decided to outsource the work initial investment is needed in terms of infrastructure, recruitment, training, etc, while the cost advantage is seen much later. There are savings in offshore outsourcing, but the quality and value addition is realized only after the outsourcing begins. NASSCOM reported that India’s great attraction as the outsourcing destination is its unbeatable value proposition and the PQR (Productivity, Quality and Rate) factor. India is at an advantageous position due to its active government support and stable political climate. According to a cyber lawyer, India is at the 12th position that has cyber legislation apart from countries like the US, Singapore, France, Malaysia and Japan.
OFFSHORE OUTSOURCING to INDIA
India is the most highly sought country as it has become a crucial necessity for the business organizations that are trying to reduce their overhead expenses. India is looked upon by many countries as a base in foreign land where their operations and business can be expanded and the outsourcing arrangements can be made for testing the grounds. Technically skilled manpower is highly available in India. After US India is the second largest exporter of software and has many software companies with ISO 2000 certification than any other country in the world. India is rated as number one choice for offshore outsourcing by a World Bank funded study.
From the perspective of doing business in India and offshore outsourcing to India, the most important law which regulates all aspects relating to a company is the Companies Act. It contains provisions relating to formation of a company, powers and responsibilities of the directors and managers, raising of capital, holding company meetings, maintenance and audit of company accounts, powers of inspection and investigation of company affairs, reconstruction and amalgamation of a company and even winding up of a company. In addition, the Indian Contract Act is another legislation which regulates all the transactions of a company. It lays down the general principles relating to the formation and enforceability of contracts; rules governing the provisions of an agreement and offer; the various types of contracts including those of indemnity and guarantee, bailment and pledge and agency. It also contains provisions pertaining to breach of a contract. The other major legislations include: the Industries (Development and Regulation) Act 1951; Trade Unions Act; the Competition Act, 2002; the Arbitration and Conciliation Act, 1996; the Foreign Exchange Management Act (FEMA),1999; laws relating to intellectual property rights, etc.
Legal Issues in Offshore Outsourcing
There has been number of legal issues in offshore outsourcing to India as more and more global organizations are outsourcing their business processes and IT services here. If an organization is outsourcing to India, it should be made sure that the organization is aware of Intellectual Property protection and the data privacy and protection in India.
Taxation in India: Offshore outsourcing decision is greatly influenced by taxation policy of India. Before outsourcing, the tax associations should be understood. This is an important legal issue as different countries have different tax laws. The outsourcing provider can be consulted about which tax provision would be suitable in the legal contract.
Choice of Law & Contracts in India – While executing a legal contract, the laws of a single country are not sufficient. Accordingly, prior to signing a legal contract, it should be made sure that the law governing the contract is decided. Consequently, if the choice of law is expressed in the contract, it will definitely be supported in the Indian courts.
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By Rahul Dev
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