You should do as the old adage pleads, “Trust all men but none too much.”
This isn’t a commentary on doing business with a nearshore partner but cultural differences, language twists and moral barometers differ too widely to leave anything to chance. There was a time, although no one remembers when exactly, that people could do business on a handshake and those days, whether they ever existed or not, are gone. When it comes to business with anyone, be he friend or foe, do both parties a favor and get it in writing. Having your best interests at heart, means writing them down on paper and creating a true sense of partnership between you and your nearshore provider.
Your contract gives them outcome ownership, responsibility, and respect in dealing with you. Here are ten reasons why you should “get it in writing” when dealing with your nearshore partner.
1. Service Levels – A Service Level Agreement or SLA is a written document that clearly spells out what your nearshore partner’s responsibilities are, your expectations of delivery, payment penalties for failure, bonuses for success and contract termination stipulations. Typical SLAs range from one to three years in length. The SLA is your first line of defense when things go wrong with your new relationship and it should be the first document on your mind to get in writing. The honeymoon won’t last forever and you’ll need that protection when it comes time to determine custody of your money.
2. Language Barriers – The words “immediately” and “at once” can mean very different things to people in other countries. You should engage an attorney with experience in dealing with laws and language in your nearshore partner’s home country—yes, even the English-speaking ones. Your attorney will appreciate your desire to have written contracts and you should communicate clearly and explicitly your needs to him so that he can interpret those into legalese to satisfy both sides of the partner table. Let the lawyers handle the contract wording and phrasing. But, read all documents for yourself to determine if the language is accurate. No one, not even your attorney, has your best interest at heart. A second set of eyes on the contract can save future litigation.
3. Currency Exchange Rates – It sounds crazy but one of the speed bumps in doing business with companies in nearshore locations has to do with currency exchange rates. Unstable economic times mean that currencies may become overvalued or undervalued on an almost daily basis. To mitigate this potential problem, agree on an exchange rate that meets your needs as well as your partner’s. Long-term rate lock-in isn’t possible but you should be able to renegotiate rates every six months. Any more often, leaves you in the same place as no exchange rate stipulation. Longer terms could prove financially detrimental to you or your partner.
4. Dishonesty – Let’s face it, not everyone has your irreproachable moral character or your extreme powers of discernment. Your partners may feel that, since you are a rich North American, you can afford to take a few hits in the wallet. The number of honest companies far exceeds the dishonest ones but your contract will protect you in either case.
5. Short History – You’ve selected a company as your nearshore partner but how much experience does the company have? Is it a startup? Startups are notoriously risky. Do they have verifiable references or are you their first customer? It’s OK if you are as long as you understand the trials and pitfalls that may follow such a partnership. Find out if the company principals have any history running or working for similar businesses. Being an early customer can place you in a key spot as a reference and as a partner. Startup companies, hungry for capital, will often offer an ownership stake in their business. Have your attorney present for all negotiations involving capital funding, ownership and transfers of assets.
6. Experience – Your nearshore partner’s company executives may have little to no experience in your particular field, business or in dealing with issues that face U.S.-based operations. This means that they might not understand the timeliness of actions performed on your behalf.
Furthermore, you should be wary of any negotiations that go too smoothly or those who agree to all your demands without hesitation. This could throw a warning flag about experience, not only in negotiations, but in business. Your contract should provide clear metrics on which you’ll measure performance. You won’t gain any advantage of using a nearshore partner who can’t comply with your contract terms due to lack of experience. Instead, you’ll spend your time training them and losing whatever ground you gained in seeking out a nearshore labor pool.
7. Unstable Political Environments – It’s no secret that many nearshore countries experience political upheaval and power shifts with some regularity. Rarely do these changes directly affect business in those locations but should a U.S.-unfriendly faction take power, even temporarily in your chosen site, have your contract and a backup plan within arm’s reach. Your contract may be your only hope for salvaging your investment and leveraging your claims in international court.
8. Acquisitions – Rapid growth of nearshore support companies is due mainly to U.S.-fueled corporate downsizing and their eternal search for cheap labor locations. However, the one obstacle to business continuity in nearshore locations is company absorption. This absorption, also known as acquisition, can cause disruption in your business. New staff, staff reductions and groups of “ship-jumpers” who go out and start their own companies from the ashes of these acquisitions can take a toll on your customer support and other nearshore-partnered functions. There’s no ironclad defense against such actions but you should begin your contract negotiations with the acquiring entity as soon as practical.
Describe your need for continuity and smooth transition to the new management team with your current contract in hand. Generally, new companies will honor your currently held contracts but possibly for a very limited time before renegotiation.
9. Cultural Differences – As one expatriate now living in Argentina puts it, “People think differently down here, priorities are different and you have to consider that when doing business here. People in the U.S. live to work and here they work to live—and many of those work a minimal amount in order to live.” Explicit definitions of your expectations might seem a ridiculous thing to consider in a contract but it isn’t.
Outline your expected working hours, response to request times and, in the case of multi-tier support schemes, a reasonable relay time to U.S.-based staff. You’ll have to abide by other cultural differences such as holidays, national labor laws and the intrinsic cultural aspects that dictate work ethic.
10. Crime – In urban nearshore locations, it seems as if certain crimes (robbery, mugging, kidnapping) are almost sanctioned, or at least blatantly overlooked, by local law enforcement. Organized crime runs rampant in some locations. Bribery and corruption are commonplace. This is one of the best reasons to have your contract handy and your attorney on speed dial. Don’t expect a great deal of sympathy from local authorities in these matters and be prepared to absorb the losses or take your grievances to higher courts.
While the assets you own in a nearshore location might be of a virtual nature (Intellectual Property, Techniques, Data), you have a stake in them and losses mean financial impact to your company. Your written contract could prove invaluable in recovering damages due to theft.
These ten reasons to create and retain written contracts shouldn’t scare you away from doing business in nearshore locations but it should raise some questions before you sign on the dotted line. You have your interests (Customers, Assets, Reputation) to protect. Get your protection in writing.