People ask me with some regularity on how I got to where I am at my relatively young age. My stock answer is hard work and a lot of luck, but I recently came across a thesis that helps answer this question in a much more compelling fashion. This thesis is set out in the Canadian author and sociologist Malcolm Gladwell’s recent best-seller Outliers. This contains Gladwell’s attempt at explaining why there seem to be generations of people who are extremely successful; his fundamental premise is that successful people are as much a product of their circumstances and the environment as of their abilities. I believe that my generation is one such ‘outlier’ generation. People born in the decade between the late 1960s and the late 1970s in India came into the work force in the second half of the 1990s. We arrived in the workforce with a quality education, a ferocious work ethic and little else, shaped by our parents’ insistence that our only hopes of making a decent living were dependent on an excellent education and extreme hard work. What no one had anticipated was the economic awakening of India which commenced in 1990 and gathered real steam in the last decade. This economic renaissance opened up opportunities which no one even knew existed and my generation was in the best place to take advantage of these opportunities.
This is relevant because the backbone of the economic renaissance has been technology. Technology’s transformative effect on India has been profound and concentrated – we have experienced so many changes in the span of 10-15 years that the experience has been breathtaking. Unlike many developed economies, where the ground work for the technology revolution was laid over decades, technology in India has simply leaped generations. The scope of the change is impossible to measure in meaningful terms, and only history will be able to judge the impact technology has had on India’s transformation, but experiencing it first-hand has been exciting and rewarding.
Impact of Technology on India
I will illustrate the impact of technology in India by reference to four examples:
1. the Bhoomi Project
2. the e-Choupal initiative
3. matrimonial web sites
4. technology and business process outsourcing
India’s emergence as the top offshore outsourcing destination is well documented and aspects of that form a major focus of the latter part of this article. The first three give a sense of the impact of technology on the lives of Indians who are not part of the outsourcing industry. They were also chosen because they have interesting impacts on the law and legal rights in India.
Bhoomi
If you break up the Indian economy into its constituent parts, agriculture accounts for 15% of economic output but employs approximately 50 % of the work force. Hence agriculture has an outsized impact on Indian policy-making despite its declining percentage of GDP. Indian agriculture is hampered by a number of issues, a primary one being the fragmented nature of land ownership and the inability of land owners to show effective title to their holdings. Rural land owners have long been at the mercy of the bureaucracy when it comes to perfecting their rights over their holdings. This has resulted in a lot of corruption and land grabbing. Our courts are jammed with cases disputing the ownership of land, especially since succession in India is governed by personal law and a bewildering number of persons could theoretically have a claim on ancestral property. Further, the seminal work of the Peruvian economist Hernando De Soto has demonstrated that the lack of clear property rights is the primary cause of poverty in poor countries. It is against this backdrop that the first our transformative projects – the Bhoomi Project – is set.
Bhoomi which literally means ‘earth’ or ‘land’ is an initiative of the Government of Karnataka, the state of which Bangalore is the capital, to move rural land records from hard copy to digital form. Over 1,200 people spent over 20,000 person months of effort to digitize 20 million records of land ownership of 6.7 million farmers. Today it is possible to get a copy of the ‘Record of Rights, Tenancy and Crops’ by paying 15 rupees at any one of the 177 regional kiosks where previously the farmer was at the mercy of the village accountant. Bhoomi is not a one time static project – it also records mutations in title, records changes in crops, etc. In addition to its transformative effect on securing the farmer’s title, the Bhoomi project is very important in demonstrating that the state is serious in harnessing the power of technology to transform the lives of the common man. Prior to the successful implementation of Bhoomi there were not many people who believed that the union and state governments were serious about their e-governance initiatives. The massive scale and successful implementation of Bhoomi has put paid to doubters and has spawned clones across the country. The Karnataka government has since commenced the digitization of urban land records.
e-Choupal
The e-Choupal project is also a transformative project in rural India. It is an example of a private sector initiative that benefits all the parties concerned. It is also an example of a technology enabled initiative that piggy-backs on the major technological change in India over the last 10 years – the pervasive spread of telephony to the farther reaches of India. e-Choupal is a project run by the Indian Tobacco Company or ITC. ITC have diversified their business mix into a number of areas such as hospitality, clothing and consumer products to offset any decline in their tobacco business. One of their other major pushes has been into the processed food and food grains category. By extension, they are one of the biggest buyers of agricultural produce in India and it is in the procurement of agricultural produce that ITC introduced the e-Choupal.
Since the vast majority of Indian farmers are small holders, the movement of agricultural produce from the farmer to the end consumer involves a number of intermediaries. Traditionally, the intermediaries have always had access to superior information about the price and demand for products with the result that the farmer rarely gets the best deal. Price discovery is limited to say the least. ‘Choupal’ is a Hindi word meaning ‘meeting place’. An e-Choupal is a computer terminal supplied by ITC which is installed in a village and which connects to the internet via VSAT or telephone lines. Farmers from a group of surrounding villages use it to sell their products to ITC directly. They also use the e-Choupal to get information regarding the price of their crops in the local markets, macro-factors affecting the price of their crop, weather information, etc. I will not go into the details of how ITC and the farmers transact using an e-Choupal but it makes commercial sense for both parties. According to an estimate, ITC saves $5 per tonne of soyabean when it buys via the e-Choupal compared to the normal trade channels. Since ITC procures directly from the farmers, the farmer makes more than what an intermediary would have paid. The real beauty of the project lies in the fact that ITC have co-opted the local intermediaries into the e-Choupal supply chain, using them to identify where to install the e-Choupals, collect price data from local markets and to provide the transportation from the e-Choupal to the ITC transportation hub. ITC pays them a commission and the volumes are such that initial resistance has been overcome.
The e-Choupal has had to overcome some serious legal hurdles. Agricultural produce is the subject of significant regulatory oversight and intervention for all sorts of reasons. As is the case most of the time, the regulatory system is archaic. The primary legislation in India, the Agricultural Products Marketing Act is designed around the basic premise that farmers will only sell their produce in local regulated markets. Restricting trade through these markets also allowed the government to collect taxes effectively. Since the e-Choupal by-passes the local market construct, ITC had to make representations to the government on how e-Choupals were in keeping with the public policy objectives underpinning the APM Act. The government not only agreed to allow e-Choupals to be rolled out but also provided a waiver of taxes.
The success of the e-Choupal has led to similar initiatives from other companies but there is increased government intervention because of the spike in food price inflation.
Matrimonial Web Sites
This is my favorite example of how technology has been adapted to meet traditional Indian needs. One of the most enduring social institutions across all of India and the sub-continent in general is the arranged marriage. The vast majority of marriages in India are arranged by the families of the groom and bride. The groom and bride have varying degrees of say in the choice of their life partner. The arranged marriage is based on an intricate social web of relationships – for example, my mother knows your aunt whose sister in law has a niece who is of marriageable age and satisfies all the pre-conditions necessary for a marriage proposal to commence. It works because of personal relationships that span generations and countries and is rooted in our strong sense of family. The rise of the urban nuclear family has caused significant rifts in this social web with the result that families are finding it harder to find suitable matches for their children. The dot.com boom spawned a technology driven answer to this problem – online matrimonial sites.
Matrimonial sites such as Shaadi.com and Bharatmatrimony.com are not to be confused with online dating sites or social networking sites. These are web sites that replace the old marriage broker. These are subscription driven sites which require you to fill in a detailed questionnaire – Name, Age, Caste, Phone Number, Mailing Address, E-mail, Religious preferences – and information regarding profession, physical appearance, photos, videos, horoscopes and references may also be uploaded.
People who are interested in finding partners buy a subscription. They fill in some details and the site may or may not use some business intelligence rules to throw up profiles which match the requirements details.
What is interesting for lawyers is that these sites possess an incredible of amount of intensely private data. According to estimates, Bharat Matrimony alone has 20 million subscribers who have provided it with personal information. The leading web sites all recognise the need to secure data and filter out the more obvious problems. They all claim to be secure web sites that provide robust levels of data security but security measures are far from fool-proof. The real problem lies in the fact that the Indian legal regime on data protection is far from world class, thereby denying users a means to effectively enforce their right to privacy. The recent amendments to the Information Technology Act have made changes in the right direction but a lot more remains to be done.
All of that said, I still believe that these sites are a superb demonstration of how technology is transforming India, and Indians, in very fundamental ways.
Outsourcing
My fourth, and major, area of focus is the IT and BPO outsourcing industry. The technology outsourcing business is the poster child for India’s renewed relevance on the world economic stage. The Indian outsourcing companies were instrumental in drawing attention to the key factor underlying India’s economic potential – its massive pool of young people, a lot of whom have good technical educations. A lot has been made of India’s massive domestic market and its 300 million people strong middle class being the reason why India and China will drive global economic growth. All of this is true, but what is being ignored is that a lot of the middle class is employed in the services business and that the biggest service business of them all in India is technology and BPO outsourcing. By one estimate, every IT job creates eight indirect jobs in the local economy. The outsourcing industry is also important because it demonstrated to the world that India and Indian companies can compete with and beat the best companies in the world.
I have been fortunate to witness the phenomenal growth of India’s outsourcing industry from the inside. The sheer speed is quite intimidating. In fiscal 2003, Infosys had 750 million dollars of revenue and approximately 10,000 employees. We ended fiscal 2009 with 4.5 billion dollars in revenue and over 100,000 employees.
The outsourcing industry is lucky in that it is quite lightly regulated. In fact, I concern myself more with the laws in our major markets than I do with Indian law. (I know far too much of US wage and hour law for example.) At Infosys Legal, we focus on employment law, corporate and compliance, intellectual property and commercial contracts. Of the four, commercial contracts is by far the largest because we figured out early on that the bulk of our regular legal spending was negotiating contracts with our clients.
Outsourcing Contracts
How do I view the current situation with outsourcing contracts?
Starting with the positive, if I had to choose one major market in which to review and negotiate a contract, it would be the UK. That’s not just flattery on my part, but it is as much a reflection of what we see in our other major markets as what is happening in the UK.
But our overall view of outsourcing contracts is that they have become increasingly adversarial over the last 5 years. Viewed through that prism, some UK contract forms are still a pleasure to work with, but we are seeing a trend of harmonization with the highly prescriptive and adversarial US formats gaining at the expense of pragmatic UK contracting. If I had to rate the major common law jurisdictions on the ease of contracting, I would rate Australia as being the most aggressive market followed by the US and Canada with the UK being the most pragmatic.
I use the word pragmatic consciously because I believe that we are losing the essence of commercial deal making in our bid for the perfect contract. In essence, the contract document itself is a memorialisation of the business arrangement but often I get the feeling that the document has become an end in itself and the underlying transaction has been reduced to an afterthought. Where in the past we would have a 30-page document in which the provisions from the representations and warranties through to termination would constitute three or four pages, we now have contracts where the warranties themselves run into three or four pages. What real value is being added to the underlying business transaction by the ever expanding set of hooks on which the vendor can be hung?
DLA Piper’s Middle East Practice recently published a list of the top 10 reasons why outsourcing transactions fail. The reasons are:
1. Inadequate due diligence
2. Excessive staff turnover
3. Poor governance
4. Over ambitious service commitments
5. Undocumented changes
6. Inflexible pricing structures
7. Over-engineered service level regimes
8. Unbalanced contract terms
9. Failure to appreciate and monitor original contract terms
10. Brittle contracts
While one may disagree with the specific entries in the list, what is undeniable is that the vast majority of contracts fail when some aspect of the underlying business transaction fails. The corollary to this is that the successful deals are the ones where both parties have a healthy relationship that is based on a good understanding of each other and a healthy degree of give and take.
I have asked a number of British outsourcing lawyers for the cause of the move to more adversarial contracts. The response is that these newer contract models are based on the model contracts used by the government when outsourcing. That is interesting because I understand from the technology professional indemnity insurers that the government contracting area generates the maximum number of breach of contract claims. While one can argue that the high degree of claims shows the efficacy of the government model contract in permitting the government to bring claims against defaulting vendors, I think that that misses the point. If a contract is being litigated, both buyer and service provider have already lost. I would rather focus on ensuring that the underlying business relationship is sound and capable of delivering the desired results.
One of the more irritating statistics that is bandied about when considering outsourcing IT projects is that the vast majority of them fail. The percentage varies but a 70% failure rate is what I have seen on several occasions. I can tell you from experience that that number is overstated – at Infosys our repeat business percentage is over 90% and the percentage is similar for the other major Indian outsourcers as well. However, the failure rate in transformational IT projects – whether in-house or outsourced – is much higher. Transformational projects fail for a number of reasons – prime among them being the inability to translate a business vision into discrete steps that are achievable. An adversarial contract certainly contributes to failures as well.
I understand that some of the adversarial nature of these contracts is a direct consequence of vendor behavior. A client who has had a bad experience in a particular aspect will certainly look to cover that area in an exhaustive manner in the next contract. While it is important, especially from a psychological perspective, to know that a problem area has been addressed, the manner in which it is addressed is also very important. You must ensure that there is proper governance and project management on the ground during the term of the contract – contracts and projects do not fail one fine morning – the symptoms are visible for a long period of time. The real problem is that, instead of tackling problems head-on, most people postpone the hard decisions until such time as there is no other option and, often, the situation is no longer rectifiable. As lawyers, we have to recognise that it is not possible to legislate for human behavior beyond a point. All the warranties and indemnities and exclusions from the limitation of liability are not going to solve that problem. It is our job to counsel our clients that they have got to stop looking to the contract for magic bullets and actually work on making their deals work.
Another issue that I feel is not appreciated by a lot of lawyers working on outsourcing transactions is the cultural aspect of working with Indian outsourcing vendors. One of the defining characteristics of working with Indian outsourcers is our attitude to problems. If a client has a problem, our first instinct is to throw more resources at the problem to get it resolved. More often than not, this solution works. We were never the masters of the change order process. However, as our contracts have become more and more prescriptive, we are also now focusing on building out contract management capabilities just like our multinational peers. It is not something that comes naturally to us and not something that we would do if we were not worried about falling foul of one of the many hooks that are scattered through our contracts. The major victim of this process is this cultural tendency to try and solve problems. A client may have every right to expect that vendors comply with the contract 100%, but I think that all would agree that that expectation is unrealistic. People make mistakes and forget things. A services contract is entirely about people working with other people and even the most diligent human being cannot be perfect all the time. What is important is the spirit with which the parties to a deal approach the deal – if they work together to solve problems, the deal will be a success. If there is a formal structure which casts parties as adversaries, as I believe the new contract models do, parties retreat to the trenches and lob letters and claims at each other to the detriment of the underlying business transaction.
If I had to identify the one area which causes the most aggravation to me as vendor counsel, it is the constant diminution of buyer responsibilities and the passing of more and more of every responsibility to vendors. A recent case in point – ‘The client shall have no responsibility for knowledge transfer. The vendor shall be responsible for the proper delivery of all services irrespective of whether or not the client has made arrangements for the transfer of knowledge’. When we objected to the provision, we were accused of being unresponsive to client requirements. I agree that we were being unresponsive to the client’s requirement, but I question why I should be having such a discussion in the first place.
The other area where this issue manifests itself is in the dilution of the ‘savings’ or excuse clause. The latest version of the savings clause is frankly quite useless from a vendor perspective. We are only excused from performing our obligations if the client has failed to perform an obligation which is solely and exclusively its responsibility, we have notified the client of its failure to perform in the most expeditious manner and we have taken all the steps that we should have reasonably taken to overcome the failure of the client to perform. Most people know that this savings clause is next to impossible to enforce in the real world. However, that does not change the fact that if a client fails to do something that they need to do, there is every chance that the service provider’s end product will be deficient. Again, I have heard litanies about how clients have been taken advantage of and that is why these savings clauses are drafted the way they are. I think that clients need to stop thinking of themselves as victims and recognize that they contribute a fair bit to every failure. I also believe that, as lawyers, it is our job to counsel our clients when they stop being pragmatic.
If I come across as being somewhat of a fanatic in this regard, it is because I really believe that contracts need to be fundamentally fair. My first boss used to emphasise that the essence of being a good commercial lawyer is to ensure that you have a fair and a realistic deal, irrespective of which side you represented. Anything else is a failure.
I really believe that the UK has the opportunity to show that is possible to have successful outsourcing deals without having overly prescriptive contracts and I hope that I can contribute in some small way to seeding that change.
Samuel Mani Kallupurakal is Head of Legal at Infosys Technologies Limited.
