7.2 Legal Systems and Business Regulations

Legal systems shape international business operations, influencing contracts, dispute resolution, and market strategies. Common law and civil law systems differ in their foundations, impacting how businesses navigate legal landscapes across borders.

Understanding these differences is crucial for companies expanding globally. From contract enforcement to market entry regulations, legal systems affect various aspects of international business, requiring firms to adapt their strategies accordingly.

Legal Systems in International Business

Common law vs civil law systems

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• Common law system based on judicial precedents and case law prevalent in English-speaking countries (UK, US, Canada, Australia) where judges interpret laws and create binding precedents
• Civil law system based on comprehensive legal codes prevalent in continental Europe, Latin America, and parts of Asia where judges apply codified laws without creating binding precedents
• Key differences include source of law (precedents vs codified statutes), role of judges (law-making vs law-applying), legal reasoning (inductive vs deductive), and flexibility (adaptable vs more rigid)

Legal systems in international business

• Contract formation and interpretation varies with common law allowing more flexibility and relying on specific terms while civil law focuses on good faith and general principles
• Dispute resolution differs with common law using adversarial system emphasizing oral arguments and civil law using inquisitorial system emphasizing written submissions
• Intellectual property protection varies in patent, trademark, and copyright laws with different enforcement mechanisms and priorities
• Corporate governance impacts shareholder rights, protections, board structure, and responsibilities
• Employment laws affect hiring and firing practices, worker protections and benefits

Business regulations for market strategies

• Market entry regulations include foreign ownership restrictions, local content requirements, joint venture mandates, and licensing processes
• Market exit regulations cover asset disposal rules, employee severance requirements, and tax implications of divestment
• Trade barriers encompass tariffs, quotas, and non-tariff barriers (technical standards, labeling requirements)
• Foreign investment policies offer incentives for FDI and restrict capital repatriation
• Industry-specific regulations apply to sectors like financial services, healthcare, and telecommunications

Contract enforcement and dispute resolution

• Contract enforcement varies across jurisdictions with local courts playing crucial role in upholding agreements
• Alternative dispute resolution methods include binding arbitration, facilitated mediation, and non-binding conciliation
• International arbitration governed by New York Convention with major institutions (ICC, LCIA, SIAC) facilitating proceedings
• Choice of law and forum selection clauses critical in international contracts but face enforcement challenges in different jurisdictions
• Bilateral investment treaties provide investor-state dispute settlement and protection against expropriation and unfair treatment