All about Business and management

August 17, 2007

International business and legal system

Filed under: International Business — Jagdish Hiray @ 3:27 pm

            Today we are living in global economy where we use goods manufactured in one country and packaged in another country. Businesses have cross boundaries of countries and expanded themselves across the world, in search of availability of raw materials, cheap labor, talent and market for their goods. However, doing business internationally is totally different than in home country. While doing business in other countries, business people have to well aware of country’s culture, people’ behavior, country’s legal system, its political environment and economical conditions.

                        The legal system of a country is significantly important to international businesses. Differences in legal systems can affect the attractiveness of a country as market or investment site. A country’s law regulate business practices, defines business policies, rights and obligations involved in business transactions. The government of a country defines the legal framework within which firms do businesses. Therefore laws differ from country to country. For example, China has Communists government where business laws are strictly controlled by government to controlled business sectors. Where as India has democratic government and business laws are made to protect small businesses and consumers. Although different countries have different laws and regulations, knowledge of common law, civil law, contract laws, laws governing property rights, product safety and liability for a country helps business people to make business decisions.

             The common law system is commonly found in former Great Britain’s colonies and is based on country’s legal history, past court rulings on cases and ways in which laws are applied in specific situations. Judges in a common law system have power to interpret the law under unique circumstances for an individual case. Countries like United States, Australia, India uses common law systems. In civil law system, laws are based on detailed set of written rules and codes. Judges have less flexibility and have power only to apply the law. France, Germany, Russia operate with a civil law system. Some counties have legal system, which is based on religious teachings. Countries like Pakistan, Saudi Arabia, Iran and Middle Eastern nations follow Islamic laws, which is based on holy principles of Koran. It is very important for international business to interpret law according to country and its impact on their commercial activities.

             Many business transactions are regulated by contract, and contract law governs contract enforcement. It is very important for international business people to have good understanding of country’s contract laws. Contracts drafted under common law system are tend to be very detailed, where as contracts are much shorter and less specific in civil law system due to already drafted civil codes.  Therefore common lawa system has long and expensive jurisdiction process. However it has advantage of greater flexibility and allows judges to interpret a contract dispute in particular situatio as compare to civil law system. Businesses should consider these differences while dealing with contracts. Most of countries have laws to protect property rights but in reality local authorities do not enforce these laws. Property rights can be violated through private action or by public action. Private action refers to piracy, theft, blackmail and threats from individuals and groups. A weak legal system might not able to protect businesses from wrong doings. For example, after collapse of communism in Russia, weak legal system and local authorities were failed to protect local as well as international businesses from “Russian Mafia”.Business people often have to pay these mafias to protect their businesses. Public actions involve violation by local authorities or government bureaucrats for some favor or as a part of corruption for monetary benefits. Corruption in government is very common in countries like India and Mexico. The protection of intellectual property rights differs from country to country. Weak enforcement encourages the piracy of intellectual properties like patents, copyrights and trademarks. Pirated software is widely available in China, where as selling of Rolex watches, Levi’s jeans and computer software on streets is very common in Asian countries.

             Courtiers are taking steps to enforce the law to protect intellectual properties, reduce piracy to attract international businesses. International business community has come together to form set of rules to resolve contract dispute by forming ‘United Nations Convention on Contracts for international Sale of Goods” (CIGS). By adopting CIGS, a nation agrees to the other member nation that it will treat the convention’s rule as part of its law. When firm do not wish to accept CIGS, dispute can be settled in any recognized arbitration court like ‘Court of Arbitration of International Chamber of Commerce’ in Paris. Many countries have also signed an agreement to crack down piracy and protect intellectual properties by signing ‘Paris Convention for the Protection of Industrial Property”. In 1970s, United States government passed the ‘Foreign Corrupt Practices Act’ to prevent US businesses bribing foreign government officials to obtain business contracts.

              Considering impact of various aspects of legal system in international business, it is very important for business people to have good understanding of legal systems of countries they do business with.

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August 7, 2007

India : Past, Present and Future

Filed under: International Business — Jagdish Hiray @ 7:11 pm

                 Traditionally India is known as a country with its ancient heritage and centuries old culture, it is country where people from different cultures and languages staying together in a society divided by nature of work, cast and wealth. India has one of the biggest democracies in the world and second largest population in the world. It is land of great saints, philosophers, freedom fighters and great people like Mahatma Gandhi, Mother Teresa. British ruled India for more that hundred years, India got its independence by its peace and long running independent movement. Today, India has one of the fastest growing and developing economies in the world. But since past decade, India has attracted business community around the world because of its growing market potential and continuous flow of talented manpower.

                 After India got independence from British in 1947, country went through bloody riots caused by partition of Pakistan from main land. Riots caused considerable damage to country’s infrastructure and lowered moral of people. However people of India demonstrated strong integrity and support for government. Managing such a huge country in democratic manner was a big challenge in front newly formed government. British took most of wealth over period of time and left country in a poor state. Biggest challenge for government was to construct new strong democratic constitution and keep integrity of country intact. Farming was primary source of income and employment. Therefore government concentrated building strong agricultural sector by helping farmers with various financial aids and policies.

                 During 1960s and 1970s local businesses florist and they were able to served need of local market. Government concentrated building basic infrastructure such as schools and hospitals. Till 1980s India had all its products made indigenously and almost consumed indigenously. During this period of time country lost some great leaders. To protect local market, conservative government put restrictions on foreign imports and started encouraging exports. However during this period of time industrial sector has grown up fast and government already completed building major large projects such as chemical factories, oil refineries. However population growth rate keep getting higher and unemployment rate increased. In 70s and early 80s, some states started private engineering and medical colleges; government too funded schools and colleges. Other state government followed same path. Education was given more importance along with life necessities. With computer revolution in late 80s, this talented work force was viewed and used to explore more in the world and particular in United States who was leading technology revolution. In 80s and 90s many state governments formed Export processing zones to help companies setup export infrastructure, provided benefits and facilities to encourage exports and hence provide ample of employments to youth. Indian students were offered educational assistance in foreign universities and were employed in multinationals in US and Europe. Many software companies offered direct employment to readily available talent.

                  During period of 1990s, India attracted many foreign direct investment (FDI) and many international companies either setup their subsidiary or did collaboration with local companies. Many software companies opened software development and support centers in cities like Bombay, Bangalore and Chennai where ample source of talented workforce were available. Companies also viewed India as source of cheap and quality labor compare to rate in international market. With fear of year 2000 Y2K bug, many companies around the world started looking for software partner companies to patch their code. Looking at future growing market, many state governments and federal governments came together to help companies setup and open operations in India. Many multination companies such as Vipro, Satyam, and Tata Consultancy Services emerge as big software player in the market. Many well-known software giant like Microsoft, Oracle made India as their primary base for future software development. This tremendous demand for software professional gave rise to many new educational institutes, increased country’s foreign reserves, florist various local business and kept money circulation in the economy ever before.

                    After Internet bubble burst in year 20001, many companies started outsourcing their work to India to cut their operating cost. India has then become main source of outsourcing services providers. Many foreign companies outsourced their operations to either their Indian subsidiary or outsourced to big players like Infosys and Satyam computers. Call centers were moved to India and it gave rise another source employment to youth. Other service industries like medical record keeping, technical support, and product support were outsourced to India as well. Many new cities were developed and got equipped with infrastructure to support new businesses. Overall effect caused local economy to grow in all sectors, making new job opportunity available with much higher return than expected. This in turn caused increase in people’s life style and increased consumer spending. Consumer sector showed strong growth, many multi national car companies like Ford, Toyota entered car market and Motorolla, and LG has entered into consumer market to serve such a huge population. This in turn created more jobs and prospect for new business.

                 Today, Indian market has all top multinational companies and their products, serving mass population. Private sector is developing by lips and bonds, that in turn putting pressure on government to open more public sectors for private companies to do business. Government has sold non-profitable and sick public sectors to private sectors, private foreign banks changed face of traditional banking sector, and government is forced to invest in infrastructure. Today many Indian manufacturing companies are winning big contracts in the world market, trying to acquire companies oversees. Stocks of Indian companies are getting traded in all major stock exchanges in the world. Private companies are helping government setting up strong infrastructure in various fields like communication, building super highways, and building world-class airports. Overall life style of a common man has been improved.

                 However, there are challenges in front of Indian government and people of India. Population growth and control is the one of biggest challenge. Corruption within government agencies is another burning issue face by common man every day. Legal system is still in hand of corrupt officers and needs dramatically change. However looking at growth of Indian market and people’s response to it, most of government agencies will be run by private sectors in next 10 to 20 years autonomously. Existing government structure will change dramatically, government officers such as IAS, IPS and so on will soon get replaced by qualified people from private industry. Such officers having exposure to industry and global market will run government administration. Government will run as a separate entity as can be seen in any capitalist country. Indian marketplace and its economy might lead to new avenues which world has never seen before.

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