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Lesson#11
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Legal Environments
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FOREIGN NATIONAL ENVIRONMENTS
Legal Environments
Differences in legal systems:
Businesses are affected by legal environments of countries in
many ways. Legal environments are not
just based on different laws and regulations concerning
businesses, these are also defined by the factors
like rule of law, access to legal systems by foreigners,
litigations systems etc.
• National legal
systems vary on the following aspects;
– The rule of law
Some country have strong rule of law in that laws are applied
strictly, quickly and fairly,
while in others laws are not applied for various reasons, such
as corruption, strong
nationalism, weak legal institutions etc.
– The role of
lawyers
A firm depends on lawyers to access courts to seek justice or to
defend in case of any
litigation against. International business firms are affected by
the role of lawyers in foreign
countries. In some countries there are few lawyers and it is
difficult of very costly to engage a
good lawyer. In some countries lawyers may be corrupt or biased
in favor of locals.
– Access to legal
system
Access to legal system also varies from country to country,
especially for foreign entities. In
some countries foreigners can easily access courts to seek
remedies while in other countries
there may be restrictions.
– The burden of
proof
In some countries the burden of proof, in case of any
litigation, is on the defendant, while in
other countries the applicant / plaintiff has to first prove
that there is a case for the court to
proceed against someone. It may become difficult for foreigners
to get proofs in certain
situations.
– The right to
judicial review
Various countries have different legal provisions for appeals
and review of lower court or
earlier judgments. These provisions may also vary for foreign
entities.
– And the laws
Laws relevant to businesses (including foreign firms) also vary
from country to country.
Types of legal systems:
Business environments in foreign countries also vary with the
types of legal systems. Various types of
legal systems are described in the following;
• Common law
– Law based on
cumulative wisdom of judges’ decisions on individual cases over time. Relevant
judgments of upper courts have bearings on lower court
decisions.
• Statutory law
– Laws enacted by
legislative actions, i.e., through parliamentary proceedings
• Civil law
– Law based on
codification and detailed listings. Laws, their applications and penalties are
all
detailed and judges have little flexibility compared with common
based law systems.
• Tort law
– Cover wrongful
acts, damages, and injuries caused by an action other than breach of contract.
In
some countries, like USA, judges make big awards for tortuous
liabilities, while in many other
countries courts are reluctant to entertain big claims under
tort.
• Religious law -
(Theocracy)
- When the cases are adjudicated based on religious knowledge
and beliefs.
• Bureaucratic law
– When officials
adjudicate cases, such as in communist countries. This results into lack of
consistency, predictability & appeal procedures
Legal issues faced by marketers in international markets:
Variations in legal environments, rule of law, laws, and legal
systems affect foreign business firms in a
number or areas. Key areas of business that are affected by
legal environments are listed below;
• Laws concerning
employment and labor affect managing of workforce in international markets.
• Different laws in
foreign countries regulate financing of operations by foreigners. In some
countries
foreign firms are restricted access to local deposits / funds.
• Various countries
around the world have different laws concerning marketing of products,
especially
food products, pharmaceuticals, hazardous materials and
strategic products to a nation.
• Countries also
control and regulate developing and utilizing of technologies through various
laws
and regulations.
• Many countries
also have different laws and regulations that affect ownership of businesses by
foreigners.
• Countries also
regulate / restrict remittances to foreign countries and repatriation of
profits.
• Some countries
regulate closing of operations and in some countries businesses are not allowed
to
close shop especially when they have sold products that have
guarantees and warranties from the
foreign firms.
• Various countries
around the world have implemented different trade and investment regulations.
• Countries also
have their own taxation requirements, systems and laws.
• Countries also
differ on the accounting reporting requirements from various categories of
firms.
• Legal
environments of countries vary that also affect dispute resolution situations
and
• contractual
relationships.
• Countries around
the world have also actively implemented environmental regulations that affect
businesses.
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