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Lessons from attorneys on the front lines in India: Be ready to grease palms, face cultural differences:

February 27, 2006

BANGALORE, India-Petty bureaucrats are more than a nuisance in India. Some like to line their pockets. And if minor officials don't get what they want, they might shutter a U.S. company's operations.

Given enough time and money, disputes can be settled in India's infamously slow courts. But V. Umakanth, a Bangalore partner with the Indian law firm Amarchand Mangaldas, counsels clients to simply make the small grease payments some administrators expect.

"There is still corruption. Foreign businesses need to deal with that," Umakanth said. "With low-level officials, companies consider it a cost of doing business."

Most any commercial activity in India requires hiring Indian lawyers. The Indian government won't allow foreign attorneys to practice here. Indian attorneys often can be found through stateside connections. Amarchand Mangaldas, for example, is affiliated with Baker & Daniels.

India's legal system is based on Britain's. So U.S. companies generally find it more comprehensible-and stable-than what they encounter in other developing nations, such as China.

But there are many differences, as several Bangalore-based technology attorneys explained during IBJ's visit last month. Business still moves slower in India, despite all its high-tech growth. That's particularly true when U.S. companies keep their Indian operations on a tight leash, Umakanth said. Increased autonomy often yields better results.

"No matter how far India develops, there is still going to be some cultural difference in business," he said. "Because of that, decisions do not get taken fast."

Stephen Mathias, a partner with the Indian firm Kochar & Co., noted several contrasts in Indian corporate law. For example, many company actions in India require agreement by 75 percent of shareholders. And intellectual property protections usually expire after five years without renewal.

But the most common mistakes American companies make, Mathias said, involve presuming business is easier in India just because it's cheaper. Rapidly expanding operations forget to establish safeguards to combat employee turnover. Or they ignore local procedures, a recipe for failure.

"Often, when a company comes to India, there's a relaxation in the mindset of legal compliance. They think, 'We're not in the U.S., so we can take things easy,'" Mathias said. "From a legal perspective, that's the one mistake I'd point out."
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