Outlook of Contract Management in Asia

Contract law in Asia has traditionally been inconsistent, and it remains so, even in the larger markets. This lack of contract clarity and unpredictable contract enforcement has, not surprisingly, discouraged business investment in Asia.

In part, the situation in Asia is due to a cultural tendency in Asian business to focus on personal relationships rather than on contracts. But as Asia becomes more integrated in the global economy, Asian countries are quickly becoming more sophisticated in their use of contracts and more transparent and predictable in their enforcement—a development borne out by World Trade Organization surveys.

Nonetheless, throughout Asia there are significant differences in regulation, levels of trust, and attitudes toward business, so a uniform contracting environment is far from a reality. Asia still remains in the infancy of complex contract management, including contract creation.

In a recent post on his blog, Tim Cummins, the CEO of the International Association for Contract & Commercial Management, sums up the state of contracting in Asia: “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.”

But, in general, Asia is moving toward the Western concept of business contract law. Indeed, the World Bank recently ranked five Asian countries in the top 25 easiest countries in which to enforce contracts.

A key factor driving improved contracting processes is the amount of exposure a particular country, region, industry, or company has to globalization forces. Those businesses that have global interactions are realizing the importance of secure, unambiguous, enforceable contracts with which to conduct transactions.

As Asian enterprises modernize their contracting processes and deal with an increasing amount and complexity of contracts, they are also realizing the strategic advantages that can be gained with effective contract management. They can witness in their own business how contract management can positively impact the bottom line, and they are coming to understand how a systematic approach to contract management can lead to better contract performance.

In his blog, Cummins suggests that contract management software may help Asia close the gap between its level of contract management and that of Western business. Automated enterprise contract management systems may help make up for the lack of skilled contract personnel in Asia, he says.

But Cummins points out that the adoption of contract management software remains low, in large part because Western developers have not targeted the Asian market. As a result, Asian businesses are developing their own software solutions.

However, as the Asian market for contract management solutions continues to grow apace with the increasing sophistication of contracts and standardization of contract law, it seems likely that leading contract management software firms will begin focusing more attention on the continent.