Global Business Opportunities Are On The Rise, Says Panel

But doing business abroad carries potentially enormous business risks and legal problems due to regional laws, business customs and cultures vastly different from the U.S., panel members said.

China, for example, poses a major problem in protecting intellectual property rights, according to Reynolds.

Chinese businesses often will pirate cutting edge intellectual property. They aren’t willing to abide by intellectual property “rules” and conventions recognized around the world, Reynolds said.

The Chinese government does not vigorously enforce intellectual property laws either, in part because its policy is to assist Chinese companies in jumping aggressively into producing sophisticated intellectual property.

All of which means a savvy, informed local attorney and contact in China is a must, Reynolds told hundreds of in-house counsel who attended the forum, entitled “Going Global” and sponsored by Hale and Dorr, Boston University School of Law, and the Northeast Chapter of the American Corporate Counsel Association.

Little Bit Of Knowledge Is Dangerous

Indeed, panel members stressed to in-house attorneys the importance of knowing what you don’t know.

In seeking out joint ventures, strategic alliances or outright acquisitions on the international stage, possessing a keen awareness of local customs is essential, according to the panel. Hiring a cultural “consultant” to help create a sophisticated business strategy is a valuable investment, they said.

Panel speaker Kenneth H. Slade observed that many in-house attorneys feel a certain familiarity with Europe, since English is widely spoken and many have previously traveled there. But a “go-it-alone” strategy may prove costly since numerous unseen issues may be lurking that could kill a deal or place their company at a disadvantage, he said.

That’s particularly true in Asia, said Slade, a Hale and Dorr partner who specializes in international transactions in Southeast Asia.

“While English is generally spoken by potential business partners there, it is such a different culture [from the West] and it varies from country to country, that you need outside experts both here and abroad who have had a lot of experience with U.S. companies doing business in Asia to tell you where the traps are,” Slade told New England In-House.

Elaine M. Barlas, senior international counsel of Reebok International Ltd., said at the seminar that viewing Latin America as one “culture” is simply wrong and will offend potential business partners.

“There isn’t a Latin monolith,” Barlas said. “Each country has its own culture and you need to be educated on the local culture.”

She also suggested that business relations should be conducted in English to avoid any misinterpretations, or hire a language specialist if negotiations are conducted in Spanish.

Companies in various Asian countries each have differing negotiating styles, noted Slade.

“South Korean companies are very aggressive and aren’t afraid to renegotiate,” Slade said. “It’s important not to leave anything unresolved on the table. Japan requires time-consuming negotiations, with significant delays to develop an ‘internal consensus’ by the Japanese companies. Improvisation is frowned upon. And Indian companies are very conscious of the differences between developed and developing countries. China often involves large government bureaucracies and standard form agreements approved by government ministries.”

Slade stressed that these tendencies are not stereotypes but based on his personal observations on the differences among business cultures.

He added that U.S. companies are widely perceived as impatient “deep pockets” eager to complete deals.

Establishing business relationships requires not only a consideration of local culture, but also an assessment of antitrust laws, applicable legal frameworks and trade pacts.

For instance, the European Union is designed to create the free flow of goods among all member groups. In contrast, various Latin American countries have entered into a dizzying and sometimes overlapping array of trade pacts that apply only to the signatory countries.

Similarly, Asia has no cross-border framework akin to the EU, which is an attempt to create a single market through uniform laws and regulations, according to Slade. And trade pacts in Asia are even less ambitious in scope as compared to Europe and Latin America, he said.

For example, Asian pacts focus on tariff reductions typically, and are not designed to create a unified market for goods and services, or economic and political integration, he noted.

Antitrust laws and policies also vary from region to region.

European Union rules are triggered when there is a change of “control” of an enterprise either through a joint venture or acquisition, said Richard Eaton, a partner in the London office of Hale and Dorr.

In Latin America, the whole concept of antitrust is either relatively new or has not until recently been enforced in any meaningful fashion, Barlas said. Antitrust laws in Latin American usually involve complex regulatory schemes, she said.

Currently, more attention is being paid to horizontal relationships, impacting alliances and joint ventures, she noted.

In Asia, the focus of antitrust laws is protecting weaker local entities and shielding them from foreign companies with superior bargaining power, Slade said.

“Generally speaking,” noted Slade, “as an Asian country becomes more developed, its antitrust rules are loosened and ministry approval requirements are narrowed or even dropped.”

Enforcing intellectual property rights in Asia can be a problem, he added. While that’s not a problem in Japan, countries such as India, Indonesia, Philippines and Taiwan are notorious for lax enforcement of IP laws.

Overall, Barlas emphasized to in-house counsel that the laws, political environment and commercial practices abroad do not remain static: “It’s a rapidly changing landscape. Today’s knowledge may not be entirely accurate tomorrow.”

But, she added, U.S. companies need to stay the course and look for economic growth abroad because “over the long haul, there are good opportunities to be had.”

ADR As The Preferred Resolution Model

More business is being conducted across borders than ever before due to ease of travel and telecommunications, noted panel speaker Ronald A. Cass, dean of the Boston University School of Law. Declining trade barriers are also providing a major boost to global business, he added.

But once deals and business arrangements are established, disputes are inevitable. Cass said parties are increasingly agreeing to binding arbitration as the preferred method of resolving international business disputes. Some contracts also call for “executive discussions” or mediation as a precursor to arbitration.

A sample model simple arbitration clause provided at the seminar reads:

“All disputes arising out of or in connection with this agreement shall be finally resolved under the [rules of arbitration] of the [name institution] by one or more arbitrators appointed in accordance with said rules.”

(Readers can find a sample international arbitration clause in the “important documents” section of New England In House’s website, www.newenglandbizlawupdate.com.)

Driving this trend are the growing number of sophisticated international contracts, such as joint ventures and agreements covering licensing, financing and distribution. Investors are looking for predictable, relatively speedy outcomes from arbitrators who are perceived as fully understanding the business and legal issues at hand. And the divide on legal systems (common law versus civil law) and sharp differences in market systems (commercial-based versus state- or religious-based) cause companies to loathe being sued in the opposing party’s “home” court, Cass noted.

“There’s a real dislike in going into local courts, both here in the U.S. and abroad,” Cass said. “Businesses from other countries view the U.S. legal system as typified by the McDonald’s coffee case, and U.S. companies see foreign courts as biased in favor of local businesses.”

Companies also generally view litigation as a major detriment to commerce, noted panel speaker William F. Lee, managing partner of Hale and Dorr and commercial litigator.

The advantage to arbitration is that parties can define their own dispute resolution “rules,” taking into account language and cultural differences, as well as differing legal systems, Lee said.

An international arbitration clause raises a number of issues, including the number of arbitrators used for a dispute, their nationality and expertise, as well as the method of selecting them, either in advance by the parties or by the “host” institution. Related to the selection is learning the national tendencies of an arbitrator, Lee and Cass observed.

Other issues to keep in mind include choice of law, any permissible discovery, and whether any rules of evidence apply, the panel noted.

And some laws that apply to enforcement include the Federal Arbitration Act and the New York Convention (for enforcing awards in foreign courts).

One way to reduce costs is to agree to a clause requiring executive discussions before full-blown arbitration.

“This is a popular clause,” Cass said, “because it takes it out of the lawyer’s hands.”

The provision typically mandates that lower level executives attempt to resolve a dispute by pressuring them to assemble facts and make out a case in advance. Should that prove fruitless, senior executives — who may have less personal investment in the dispute — try to settle a case before the process becomes more formal.

The clause typically requires positions to be set out in writing, at lease one face-to-face meeting and time limits for informal resolution, Lee said.

A sample model simple clause on executive discussions provided at the seminar reads:

“If for any reason the parties’ project managers cannot resolve any dispute, either party may set forth the dispute in writing and refer the dispute to the parties’ [executive officers] for resolution. The executive officers shall discuss the dispute with 10 days of the letter. If after discussing the matter in person in good faith and attempting to find a mutually satisfactory solution to the issue, the executive officers are unable to resolve the dispute within five days of their initial meeting, either party may invoke the dispute resolution provisions of this agreement.”

As an alternative, Lee noted that business agreements could include a conciliation or mediation clause in lieu of or in addition to senior executive meetings. He cautioned to avoid mediators who tend to “evaluate” disputes rather than simply attempt to facilitate a compromise.

“A facilitator doesn’t care who’s right,” Lee said. “The goal is to find a common ground for compromise. An evaluator, often a former judge, tends to look at it as attempting to make a decision on the merits. This can polarize the parties.”

A model simple conciliation clause provided at the seminar reads:

“In the event of a dispute between the parties, the parties agree that prior to any [arbitration/litigation] they will submit the dispute for conciliation by a conciliator appointed by [name institution]. In the event the dispute cannot be resolved through conciliation within 60 days of being referred for conciliation, either party may commence [arbitration/litigation].”

Questions or comments can be directed to the writer at: [email protected].