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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    Comment by Shaheem — March 9, 2008 @ 5:40 am | Reply

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    Comment by Omar Hayath — February 26, 2009 @ 12:09 pm | Reply

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