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Is Contract Management ‘coming of age’ in Asia?

July 2, 2012

There is nowhere in the world where you can point to a completely standard model for contract and commercial management – and this is especially true in Asia, where diverse cultural and political traditions and highly variable levels of exposure to the global economy have resulted in a complex mix of attitudes to the way that business is negotiated and managed.

To the extent that generalizations can be made, Asian business has relied more strongly on relationships and personal connections than on contracts and litigation. That picture is changing fast, but what approach seems likely to emerge?

Growing participation in international trade has led Governments and business leaders to appreciate the need for – and benefit of – more formally structured business relationships. This takes several forms, prime among them being an appreciation of the need for the rule of law, for the development of model contracts and investment in commercial capabilities.

For countries to prosper, a predictable rule of law within which businesses can invest and trade is of paramount importance. This means not only that laws are clear, but also that they are enforced through an honest, open and accessible system. As WTO surveys reveal, many countries in Asia have made rapid progress in this regard, though substantial issues remain, even in the largest markets. For example, the perception of China is that rulings are often unpredictable, while for India the court system is impossibly slow and bureaucratic. But the most recent World Bank rankings on ease of enforcing contracts puts 5 Asian countries in the top 25.

Contracting models remain quite variable, with a tendency to develop pro-formas that may lack flexibility. There is still a tendency to create standards that are not adjusted to provide effective business instruments. In part, this is because of a lack of skills and experience. Those involved with contracts tend either to be lawyers or administrators, in both cases lacking wider commercial understanding and authority. Western companies struggle to find recruits for positions as negotiators and contract managers.

However, the fact that the region is increasingly engaging on the world stage does not mean that it must mimic Western models for doing business. Key differences will remain, based on variations in areas such as regulation, trust, the importance of relationships and perceptions of authority. But another key difference may be in software adoption and use. The right technologies can assist in addressing skill shortages and also in maintaining competitive advantage on price, even as salary levels increase. To date, contract management software adoption has been low (in part because Western developers have not focused on selling into the Asian market), but it shows signs of picking up. However, the absence of established solutions is leading to far greater interest in developing in-house solutions, based on Open Source software and collaborative technologies such as Sharepoint.

Creative use of technology may allow Asian business to leapfrog its Western competitors through the development of far faster and more efficient methods of contracting. After all, far too many contract management resources today are deployed in overcoming the obstacles to doing business and correcting the problems with executing on commitments.

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