Doing business abroad has always been a challenge to most organizations. It involves high risk due to operating in an unknown environment. Nationals and residents take the local Saudi environment for granted, but this is not the same for someone from abroad trying to do business for the first time in the Kingdom. The same is true for a Saudi national wants to initiate business in a foreign country. There are numerous situations where multinational companies were invited to participate in local projects, but later declined. Their withdrawal is usually based on the "high risk" rating that they assign to the "unknown" environment. Factors like unfamiliarity with the working environment, local language, social standards and habits, availability of services and resources, local laws and regulations, arbitration and dispute resolution process, all in the opinion of the foreign bidders increase the risk on them for doing business locally.
Marketing people focus on the rewards of revenue and profit generation, and agree on a transaction through a "handshake" or equivalent. Executives on a higher level, worry about turning the "handshake" into a contract, the ability to execute it according to the customer satisfaction, collect their money, and feel confident that they can properly resolve any dispute that may arise. Accordingly there is a "black cloud" that hangs over most international vendors which make them reluctant to do business abroad. I have witnessed many "no bid decision" situations for otherwise great opportunities.
WTO: Here comes the World Trade Organization (WTO) to play an important role and help solve the above concern. The WTO was initiated with a mission to develop the ground rules of international commerce and mediates trade disputes. Joining the 149-member organization is a long process of negotiation. Once accepted members enjoy reduced trade restrictions, elaborate systems of resolving disputes, and the chance to influence new WTO rules. Saudi Arabia formally joined the WTO on Nov. 11, 2005 following 12 years of intense negotiations.
As a result the Kingdom will allow foreign companies to operate and compete in many industries -- like insurance, banking and telecom, which were initially restricted to local organizations. This will enhance the efficiency and competitiveness local companies. Joining the WTO will help Saudi Arabia market its products in the global market place, and increase inflow of foreign investments. The ability to resolve dispute under WTO will dilute the concerns of many international vendors, and encourage them to do business in Saudi Arabia.
Dispute Resolution: A business transaction is governed by a contract. The main goal of a contract is to insure that the business deliverables are accepted by the customer, and that consequently trigger payment for the work done. Contract implementation normally deviates from the original plan. Execution delays, changes in requirements, quality of work, wrong initial assumptions, resource turnover, and unforeseen circumstances are all factors that contribute to project performance or lack of it. The above occurrences provide a fertile ground for disputes between the parties. Some disputes are handled smoothly between the operations teams, with little or no impact on the overall project or business transaction. Others grow in magnitude quickly and eventually derail the project or bring it to a standstill.
Power within a business transaction is an important attribute that the parties build and use in a dispute resolution process. Useful power comes from relevant project knowledge and from the protection of a properly worded contract. Useful knowledge is information about the real cause of the problem, execution detail, options and intentions of the other party, and practical experience in dispute resolution particularly with external resolution. Understanding the power shift during a business transaction is critical. Before the business award, the purchaser starts with high degree of power due the availability of the total funds, and time, and his freedom of selection. However his power decreases gradually as the time for the project completion is reduced and the value of the above items gets depleted. Familiarization with this transformation enhances dispute resolution.
A good contract should be simple, short, and accurate. Each relevant area should be addressed once in order to avoid duplication and contradiction. A contract should protect the purchaser interest through a bid bond, performance bond, bank guarantee, delay penalty, liquidated damages, termination due to convenience or breach. The supplier protection comes from advance payment, work suspension, termination due to breach, cap on delay penalty, and a limit on total liability. Inter-party confidence, practical experience of each party maker, and a good contract play an important role in smooth dispute resolution. A dispute can be solved at a business operations level, or escalated to an executive level, and if not successful delegated to three representatives under the sponsorship of the local chamber of commerce. Failure to resolve it may lead to the involvement of the Grievance Board "Diwan Al-Mazalem", or an international chamber of commerce, otherwise an international court of justice. Within the new Saudi environment disputes can now be resolved under WTO, which enhances the confidence of international companies. A win-win situation usually results from solving the dispute internally at a business operations or executive level.
Disputes should be solved with a positive approach based on a team -- partnership concept, which makes both parties partially responsible -- contributors, for success or for failure. A successful project or transaction provides a win-win outcome for both parties, and the opposite is true for a failed transaction. A team concept motivates the parties to initiate the extra step and give up a little more toward moving forward. It also reminds the parties of their original objective, namely to complete the transaction as early as possible and not to penalize or revenge from the other party. Of course one of the parties might be guilty or more responsible for the delay or failure, but taking them to court and penalizing them does not guarantee a successful project completion. However the guilty party should be ready to improve its performance, possibly increase resources, make new commitments and show tangible results quickly.
Escalating the dispute resolution means further delay and additional costs in resources, legal fees, opportunity loss, goodwill and reputation. A prudent executive should consider such expenses and divert most of their value toward providing additional funds and resources to solve the dispute amicably, and move forward closer to project completion.
A good contract should address both the positive and negative scenarios that might develop during execution. If a dispute occurs, interpretations, stalling and arbitration reduce the power and effectiveness of any contract. A strong inter-party confidence, shared responsibility through team approach, properly worded contract, and long term vision are critical factors that speed up dispute resolution.
By Salim J. Ghalayini
© Arab News 2005
