Political and Legal Environment of International Markets
This paper takes a look on the political and legal environment of the global marketplace. It discusses the implications of a country’s legal and political framework in the establishment of foreign firms.
As a firm becomes involved in international activities, it becomes more engaged with foreign people and institutions. Like their domestic counterparts, international firms have to meet the external political challenges thrown at them except that these are more complex and varied due to the ‘world’ in which they operate. These challenges vary depending on the degree of internationalization of the companies concerned.
The governments of countries from which they operate play a significant role in the principle of trade. Government policies such those that issues permits on imports and exports affect the decisions to grant and withhold such permits. Similarly, the government can place severe restrictions or ban on certain products. On the other hand, liberal minded countries encourage exports and imports enabling the free flow of goods and services to and from their country. Permissions are usually subjected to health, safety and other non political conditions with exceptions to those non friendly countries (, 2000, )
A potential obstacle to firms wanting to enter the foreign market is the inadequacy of the legal, political and regulatory framework. A high degree of centralized control such that of China causes the firms to evaluate the level of political and business risk prior to their market entry.
The country’s political relations with the host country may become a major issue in the firm’s operations. Bans on trade can be implemented due to the countries’ misconduct on investors. A country’s colonial history may also be taken against the firm. Indeed, issues of the political environment are significant for international firms. Countries liken Russia have unstable governments whose policies may be changed if new leader are installed. Other countries also hold a little tradition of democracy which makes it difficult to operate.
In addition to this, the legal systems differ from one country to another. In this case, contracts may be done to even out the differences and specify in advance which laws are applicable. Treaties are also used to settle jurisdictions in which case their laws are applied to actions such as anti-competitive behavior.
The legal systems of other countries such as the United States are relatively transparent. However, some countries do not reinforced laws such as anti trust law. The limited access to legal systems is one of the serious problems among countries. Because of these there appears to be a means to redress the grievances of the parties involved.
Different legal systems are implemented in countries all over the world. In the United States, the system which is in effect is the common law. Such legal system is based on the legal tradition of precedent. In this sense, a new issue that arises from each case is considered on their merits and therefore becomes precedent for future decisions on those same issues. Europe on the other hand is guided by the code law. In this system, judges who are tasked in matching laws to situations are given a shorter leeway (‘’, 2007).
Islamic Laws which are based on the teachings of the Koran mandates prohibitions such as excessive interest rates. Because of this, Islamic countries ban interest rates while it may be tolerated by some for some reasons. This law is based primarily on the law of God rather than the requirements of the government. The Socialist Law is guided by the notion that the government is always right and thus companies are compelled to do what the government dictates. Countries in Eastern Europe and Russia that are formerly under the communist regime are advancing their legal systems in order to accommodate the free trade and market (‘’, 2007).
International organizations such as the World Trade Organization (WTO) also help to facilitate the rules of trade between nations at the global level. It consists of agreements that are negotiated and signed by the world’s trading nations. Such provide legal ground rules for the implementation of international commerce. Contracts are essentially included to bund governments and keep their trade within the agreed limits (‘’, 2007).
Generally, the legal and political environment in the international market must be understood well before the firm enters to the marketplace. Primarily because these factors have a great impact on the way they can operate. Additionally, the firms can engage in international organizations that facilitate the free trade among countries. This way legal rules will be provided that will serve as guide to the agreements of the trading countries.
References
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