7 Tips For Avoiding Legal Landmines When Doing Business In Asia
Mini vandePol, who heads up Baker & McKenzie's Asia Pacific Regional Dispute Resolution Group, has seen small oversights turn into multimillion-dollar bribery lawsuits involving even the world's biggest brands.
VandePol says Australian firms looking to operate in Asia should firm up their auditing processes, get familiar with the various legal jurisdictions and learn how to say no.
Here are her top tips:
1. Be prepared to say no
Business people should be prepared to face awkward questions and be able and willing to say "no".
VandePol says this comes down to education: if people don't go into negotiations with both eyes open, they're more likely to be talked into doing "favours" or paying a bribe.
"Someone is going to say 'No, that's not how you do business here', and ask for favours or extravagant wining and dining or money," she says.
"Many companies have just jumped into these ways of doing business and are now finding that it's a very high-risk strategy."
Regardless of local laws or lack thereof, any international companies found to be involved in bribery or corruption could be in trouble with long-arm jurisdictions like the US, she warns.
2. A single country can have multiple sets of laws and cultures
There are many different cultures, legal environments and business regulations that apply within the Asian region. Sometimes, laws vary widely even within a single country.
VandePol highlights India, which has 28 states and 7 territories. Businesses need to be familiar with taxation laws in each state, and be aware of more subtle differences.
The Indian state of Gujarat, for example, has taken a strong stance against corruption so western businesses may be tempted to lower their guard while operating there.
Operating in other states may require a little more time and care, she says, so businesses shouldn't fall into the trap of simply porting established processes across state lines.
3. Beware of third parties
Many third party businesses offer to partner with western companies to help smooth over the complexity of legal jurisdictions, a lack of contacts, and cultural norms.
VandePol says any such partnerships should be approached with great care: she has witnessed some third parties that "didn't seem to have real duties or functions [but] were paid enormous sums of money to make things happen".
In December 2008, German electronics giant Siemens pleaded guilty to paying more than $US5 million in bribes "through purported business consultants to various Bangladeshi officials".
"Third parties are a big issue if you don't manage them properly," VandePol says, adding that Siemens has since cleaned up its act. "If they behave improperly, it will come back and bite you.
"Due diligence is a very important part of doing business in Asia."
4. Think creatively to avoid insulting your business partners
In countries like China, the concept of "saving face" - avoiding embarrassment or humiliation - is key.
That can be difficult to balance against the risks of engaging in corrupt behaviour. Here's where a bit of creative thinking comes in handy.
One Chinese businessman once asked of vandePol's clients to fly him and his wife to London in exchange for being offered a contract.
After some thought, the client said he'd be happy to fly the couple to London but would need the Chinese company's senior management to write a letter stating that the trip would not influence their decision.
"The letter would make it transparent, but there was no way that he would be willing to get the letter from his boss," vanderPol explains.
"That way, we weren't engaging in improper conduct but it was not a slap in the face to a potential business partner.
"Unfortunately, Asian business is slower and needs to be carefully stepped through, but if you do it well, it will be very lucrative and sustainable."
5. Make sure disputes can be resolved in international courts
Baker & McKenzie urges its clients to include an international arbitration clause in any contracts, so they have a fighting chance to resolve issues should anything go wrong.
Without such a clause, Australian companies may find themselves fighting a losing battle on the opponent's home turf, and facing unfamiliar laws, an unfamiliar language, and access to fewer people in the know.
"You must have an international arbitration clause in your contract or risk not having the bargaining position to be able to resolve disputes," vandePol says.
She suggests agreeing to have any legal disputes resolved in an independent, third jurisdiction like Singapore for fairness.
6. Don't spill state secrets
VandePol warns that some global firms have been tripped up by very specific laws like China's state secret legislation that prevents certain information from being transmitted out of the country.
Earlier this year, corporate investigators Peter Humphrey of Britain and Yingzeng Yu of the US were arrested and made to apologise on Chinese state television for illegally gathering information on Chinese individuals in connection with a GlaxoSmithKline corruption probe.
"They were charged with stepping over the mark in terms of investigating individuals' backgrounds," vandePol explains. "In China, you have to be careful because of the regime … don't take certain information out of the country."
7. Keep informed of regulatory grey areas
While Australian laws tend to be well-defined, with a highly regulated business environment that sometimes encourages what vandePol describes as a "tick-a-box mentality".
Things are very different in Asian countries, she warns.
"That tick-a-box mentality doesn't work in Asia, where it's not just about obeying the letter of the law," she says.
"You have to have a holistic understanding of how business can be done in a lawful manner; that comes down to understanding the language of business and staying on top of changes."
She insists that that's no more difficult than how businesses normally stay on top of changes to business conditions, drivers and opportunities like commodity prices or real estate boom areas.
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