Businesses often face challenges all over the globe as they undertake their operations due to the differences in legal and political systems of different countries. Despite the sharp differences that exist in these countries, they can be used by investors or business people to the advantage of their operations. This paper is going to discuss ways through which the differences in the legal and political systems create misunderstanding and, at the same time, the manner with which it offers business opportunities in the international market. The paper will also explore ways through which businesses can overcome these challenges and use them to their advantage.
The legal and regulatory environment is a critical factor for any entity that wants to engage in business at any place in the world. For instance, the United States has a set of regulations and policies that govern how businesses conduct themselves within their boundaries. Due to the fact that there are no global regulations that manage businesses like rules that govern contracts and protection of patents, there are differences that exist as a result of the variation of laws in countries. Business corporations that conduct their businesses all over the globe often face inconsistencies in regulation in different countries. In order to counter this challenge, businesses operating within the US boundaries must abide by laws of the country and those of other nations that they intend to expand their business to (Nye, 2002).
The history of US companies reveals a lot of obstacles met in trying to comply with the laws of foreign countries. A good example is Coca Cola which met resistance from Italian legislation when it opposed the idea of printing ingredients on the cap instead of the bottle. Italian lawmakers argued that the cap is usually thrown away, making it less useful to the consumer to understand the ingredients. The other example was 3M Company, when it applied for partnership with the Japanese company Sumitomo. The company spent close to three years trying to meet the requirements of the Japanese legal system, and, when they were through, other competitors had exhausted the market. Due to the delays by the government’s legal structures, competition from foreigners was stifled by the Japanese regulators.
In the United States, there is an act popularly known as the ‘Foreign Corrupt Practices Act,’ which does not give room for the US companies to give bribes and any form of favors so as to get business opportunities. Though the practice is illegal in the United States, some Nations do not have a problem with bribing and giving favors. In this case, business people from the US are disadvantaged by this rule if the market demands from other nations require that they give favors. In essence, this law prohibits non-American investors that they should not expect bribes from the Americans.
In my close evaluation of the legal systems of different countries discussed above, there seems to be a misunderstanding of the legal procedures when international organizations invest in a new country. From the discussion above, acquisitions of legal instruments to operate the business and protection of patents may vary from one country to another and should not be misunderstood. Instead, business organizations should evaluate the market and exploit tremendous business opportunities that go along with the legal system of that place. Entrepreneurs should not misunderstand the legal differences for business barriers, but exploit the potential of the market.
Political systems greatly determine market dynamics. Political systems of countries vary from one nation to another, thereby determining the manner in which business is conducted. A country like North Korea is led by a dictator, and the country’s fate is determined by one individual. In a country that is characterized by a totalitarian regime, only one party clings to leadership and denies other interested parties the opportunity to lead; China is a good example. There are other countries that determine their leadership using religions, Iran being at the forefront with this type of leadership. Monarchy, which is another political style of leadership, is used by countries like Saudi Arabia, where leadership succession is hereditary. The other styles of the political system are parliamentary and Republics, where the population participates in electing their leaders. In a situation where there is no leadership, there is anarchy. In this situation, the state is failed.
In the international market, markets are determined by a government political system. In most cases, the economic style is determined by the nature of the political system. In a government that is democratically determined by the electorate, the market is driven by capitalistic ideologies, and the business people determine all the forces of the market. In states that determine the market, economic activities are determined by a central administration with specific attention to the economic policy of the state. According to Nye (2002), “in a dictatorial political system, the leaders control the market, distribution, and pricing.” In mixed markets, the state controls some sections of the market while the other section of the market controls itself. Therefore, the political systems of a country greatly determine the market opportunities in that state.
From the argument above, it is evident that a political system can create a misunderstanding in the international market. Investors would perceive a given market segment from the leadership style that is practiced. Despite the fact that there might be big market potential, organizations would shy away, giving room for local investors to continue thriving. However, other sectors of the economy might not be exploited without external investors. It is real that political orientations create misunderstandings of the international market.
One of the approaches that organizations can use to deal with laws and regulations of other countries is by contracting lawyers of respective local countries who can offer them advice on the local laws. In addition, international organizations can opt to work closely with businessmen and women of local countries who have expertise in their legal systems. Working closely with the local business, people also enable international organizations to be in harmony with the political system of a local country. In order to auger well with the political systems, organizations can design products that do not attract criticism from religious or political points of view. They should research the market extensively so as to provide goods and services that are acceptable.
Reference
Nye, J. S. (2002). The Paradox of American Power: Why the World’s Only Superpower Can’t Go It Alone. New York, NY: Oxford University Press.