Worldwide Set of Laws for International Business - Dissertation Example

Worldwide set of laws for international business Introduction The way the business world operates has undergone significant changes and today the new business landscape pays particular attention to the needs of international business. Ajami and Goddard (2006, p. 4) simply define the term international business as any business activity that involves the cross border transaction of goods or services. The emergence of globalisation, technological revolution, and increased migration flow have contributed to the development of multinational corporations and boosted the rate of international trade for the past few decades. Today many organisations have strong global presence as globalisation eliminated cross border trade barriers and promoted the concept of free market trade. However, the lack of global legal framework for international business creates a series of issues in international business context. The main problem is that political parties take unfair advantages over MNCs in the absence of a common set of international business laws. In addition, cultural factors are also challenging the competitiveness of international companies because those firms are needed to compete with domestic providers who are under the legal institution of the community in which they operate. Often, domestic marketers obtain higher level financial assistance from the country’s government as compared to foreign companies and this situation threatens the sustainability of international players. This paper will give specific focus to the desirability and possibility for establishing a worldwide set of laws for international business by giving reference to countries having emerging markets. Desirability of common international business laws Since the end of the World War II, international trade grew tremendously because nations had commercially interacted at an increased level to rebuild their economies which had been struggling with the impacts of the World War II. The second wave of globalisation emerged in 1950s and it also greatly contributed to the growth of international trade transactions. Globalisation eliminated international trade barriers and enhanced cross border movement of goods, services, capital, labour, cultures, and ideas. Globalisation promoted an associated force called economic globalisation, which in turn enhanced the development of a global economy. As Selden (2008) points out, different nations have different set of business laws and this situation makes huge difficulties for multinational organisations in the context of international trade. To illustrate, China, one of the most potential emerging markets in the world, has stringent business laws as compared to other international markets. As a result, foreign companies face many barriers in entering the Chinese market and promoting their business activities. In contrast, India, worlds’ another emerging market, is more liberal to foreign market players and therefore foreign companies obtain easy access to the Indian market. Since varied business regulations impede the growth of international trade, it is necessary to establish a set of worldwide laws for international business. Similarly, each nation has its own distinct cultural aspects and hence it would be very difficult for organisations to remain in a country’s market successfully unless they par with the cultural environment of the destination. Hence, multinational corporations strive to fit their business practices with the cultural aspects of the market/country in which they operate. For instance, while marketing goods and services in India, Multinational companies like Coca Cola mainly employ cricket and Bollywood celebrities as part of their product/service promotion because those groups of individuals have a great influence on Indian people. As Mujih (2008) states, since determining the nationality of an MNC is a difficult task, those organisations have many limitations in integrating its business activities with the cultural aspects of an overseas market. When an MNC operates in an overseas market in accordance with the policies of its home country, the business is most likely to be rejected because cultural aspects of the overseas market may not support the legal provisions of another country. Under such circumstances, domestic providers completely adhering to the business practices of their country can also raise potential challenges to the foreign company. Furthermore, it is not an easy task for an international company to make operational policies in accordance with the cultural peculiarities of all countries in which it proposes to operate. Often, such efforts would cost an international organisation huge funds and this situation would adversely affect the firm’ profitability and operational efficiency. Similarly, unnecessary political intervention is another issue faced by multinational corporations as a result of lack of common international business laws. According to a 2006 report, in third world countries and many of the developing and developed countries, political parties interfere with business activities with intent to gain unfair financial benefits (AON). For instance, in most of the African countries where corruption rate is high, political parties lead employee strikes and other forms of protests to force foreign companies to change their business policies in a way that would benefit the political parties concerned in term of financial earnings. In some other countries like India, politicians unethically intervene in business policy formation so as to gain public acceptance over their rivals. Evidently, such corrupt political activities persuade foreign business firms to refrain from those countries and the situation in turn would limit the growth of international trade. In other words, political interference would hurt the concept of free trade and therefore establishment of common laws for international business is necessary to enhance cross border trade growth. Possibly, politicians cannot interfere in the foreign firms’ business operations if there is a set of globally accepted common international business laws. In the current global business context, many international companies find it difficult to confront with domestic competitors because the host governments offer some discriminatory concessions to their domestic marketers. For instance, host governments impose duties on foreign exports while domestic manufactures are allowed to freely market their products. Sometimes, host governments also grant special financial concession to their domestic marketers. Such situations limit the scope of international business and raise the need of a global framework for international business. Authors like Nelson (2006) strongly support the need for a worldwide set of laws for the smooth flow of international business. The author holds the view that it may be helpful for every international organization to have a set of common worldwide framework for integrating law and ethics into all of its policies and activities (ibid). The author says that “such a framework for legal principles would be useful because the law provides the fundamental institutions making business possible”.......and “such a framework for ethical norms would be useful because corporations can promote their business goals by observing the ethical norms of the many communities in which they operate” (Nelson 2008, p.3). The writer strongly argues that violation of legal and ethical norms of a society can have dreadful impacts on a business. There exists a general assumption that the concept of globalisation makes the poor poorer. However, in a close evaluation, it seems that lack of a global framework for international business is the major element impeding the growth of underdeveloped economies. As discussed earlier, unethical and corrupted political practices prevent African countries from experiencing fruitful effects of globalisation. In addition, many Latin American countries are still increasingly dependent on Europe mainly because of their hostile business environment and political spectrum. However, establishing a framework on a global basis would assist MNCs to freely enter those countries’ markets and to remain less prone to unnecessary political interventions. Finally, such a global framework is important from the perspectives of business managers and employees. It is clear that MNCs largely recruit employees and other officials from the country in which they operate. Due to difference in practice of legal and ethical norms around the globe, foreign employees and managers find it difficult to serve the interests of different communities effectively. In the words of Nelson, “giving managers throughout a corporation a common understanding of legal principles and ethical norms in terms generally applicable around the world provides those corporations with a single starting point for integrating law and ethics into their worldwide business operations, thereby enhancing the quality of decisions made and implemented throughout the corporation” (Nelson 2008, p.3). Generally, corporate managers formulate decisions and execute them on behalf of their corporations. Studies indicate that quality of managers’ decisions and their implementation are often affected when managers are forced to give due consideration to legal principles and ethical norms with respect to the particular community in which they work. In total, a global legal framework for international business is absolutely necessary. Possibility of setting common international business laws A series of corporate failures, particularly the Enron scandal, in the US over the last decade compelled regulators around the globe to review their corporate governance policies. In response to this event, many of the national governments restructured their business policies and code of corporate conduct. The UK Corporate Governance Code 2010 was formed in response to the financial scandal in the US and it includes many amendments of corporate governance principles (Financial Reporting Council, n.d.). However, economists argue that such individual efforts would not reduce the possibility of economic turmoil in future pointing the fact that bank failures and corporate scandals in the United States resulted in the emergence of global recession. They suggest that a set of globally accepted corporate governance principles is essential to minimize the probability of another global recession in future. Furthermore, the prevalence of merger and acquisition practices is increasing throughout the globe because large organisations have realised that there is no other easy and potential alternative way to expand their business globally. Hence, another corporate scandal in future would more dreadfully affect the global economy. As a result, today regulators and economists all over the world are researching the possibilities of establishing a global framework for international business. Admittedly, providing corporations with a globally accepted framework of business laws is a an ambitious challenge; but the challenge will be negligible while considering the challenges facing corporate leaders today as a result of lack of coordination of business laws in the global context. From the view point of Nelson (2008, p. 4), establishment of such a framework is feasible because many notable common aspects can be seen among legal and ethical norms applicable to the international business. The author adds that even markets which are situated in different parts of the globe and not related in any other way have been following the same fundamental legal institutions for centuries; and private property rights and contracts have been performed according to common customs and norms among merchants since the beginning of the trade era (ibid). In addition, businesses were spread internationally even many centuries before, with traders from different regions of the globe agreed to private property rights, contracts, and a common set of customs and norms for conducting the business. With the emergence of globalisation and the rise of the modern era, governments across the globe integrated many of these common customs, norms, and practices into their business laws. As a result, business laws of many nations have been increasingly homogenous. Referring to this change, many economists argue that it is possible to frame a set of worldwide policies to facilitate international business. Interdependency among nations increased since the emergence the second wave of globalisation, and hence governments strive to stay in good touch with other countries. Nations have identified that lack of a global framework for international business is turning out to be a barrier to good diplomatic relations between governments. Hence, they are trying to integrate legal and ethical norms into their business polices that would promote international trade practices. Referring to the existing international business and economic landscape, the interdependency among nations is likely to grow over the next decades and this trend would necessitate common global international business laws. Development of some new emerging economies adds to the scope of a global framework for international business. As per reports, in terms of nominal GDP, the world’s seven largest emerging economies are China, Brazil, Russia, India, Mexico, Indonesia, and Turkey (Hawksworth 2006). Referring to the manpower potential, economists anticipate that China and India would become the world’s largest economic powers within the next three decades (Moulds 2012). It is observed that most of the leading international firms have a strong presence in any or all of these emerging markets. For both these economies and MNCs, it is important to have a set of common international business laws to enhance business expansion because there are a large number of global players operating in these emerging markets. In order to take advantages of the favourable business environment, all these economies (except China) are liberalising their trade laws. To illustrate, India has liberalised existing labour standards so as to attract huge volume of foreign investments and hence to completely utilise the favourable market environment created by the globalisation forces. According to scholars, “the dilution of stringent labour standards and strong resistance to any strengthening of workers’ rights (which sometimes become an obstacle to competitiveness in the global economy) is becoming prevalent in India” (Suri & Dubey 2008). Through such practices, India is trying to make its market attractable for international business firms. In other words, the country promotes the development of a common framework for facilitating international trade. Similarly, China has also liberalised its trade policies to some level even though it still remains hostile to foreign companies. Since the same strategy has been adopted by most of the emerging markets, establishment of a worldwide set of laws for international business seems possible in the near future. Factors hindering the establishment of common global business laws Although the fast development of emerging markets like China and India points to the development of global set of laws for enhancing international trade activities, there some still some factors hindering the scope of such a framework. Mainly, political and cultural factors seem to be an obstacle to the formation of a global framework. As stated earlier, today foreign business organisations influence the host country’s ruling political parties in order to gain unfair business support through either policy amendments or approval of a business proposal that would be rejected normally. Such unethical practices can assist politicians to obtain illegal remuneration in the form of bribe. Since the setting of a global framework for international business would limit the politicians’ power to intervene in a country’s business environment, political parties may not support such initiatives. To illustrate, majority of the major political parties around the globe depend on corporate giants to raise funds for election campaigns and their party development activities (Austin & Tjernstrom 2003). If politicians lose their hand in business policy formation in the country, corporations are less likely to support the needs of political parties. Therefore, political parties would object the movement for establishing a worldwide set of business laws for international business. In addition, cultural environment of a country may not change easily and hence a country’s cultural landscape may not quickly accept a new business framework which will be developed on a global basis. This resistance can be attributed to people’s strong resistance to cultural change. The process of making a global business framework certainly involves elements of cultural change. An individual who has been practicing the customs and conventions of the community would not be willing to adapt to a cultural change immediately. At the same time, if regulators implement a global set of business laws without paying consideration to cultural aspects, such a practice would cause huge troubles to the country’s business environment and ultimately to the economy as a whole. Conclusion In total, it is clear that making a common set of worldwide business laws is highly desirable. Such a global framework would minimize the level of political interventions in the business environment and hence assist international companies to promote their business freely. In addition, the proposed system would reduce the impact of negative cultural forces on the international business. Since this framework will set common laws for international business, no international company would gain unfair edge over others in terms of legal provisions. This global framework would provide business managers and employees with good understanding of the international business activities and the global trade growth. A series of bank failures and corporate scandals over the last decade have contributed to the possibility of establishing a global framework for international business. In addition, increasing interdependency among nations also points to the development of such a framework in the near future. Politicians are less likely to support such a business framework because their influence over businesses would be limited under this system. Finally, people’s resistance to cultural transformation may also be an obstacle to the development of such a global framework. References AON. 2006, ‘Political Interference Is Greatest Threat To Global Trading in 2006’. London. 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[online] available at http://www.gghslaw.com/pubs/Selden%20-%20Going%20Global%20(NBI).pdf [Accessed 10 Dec 2012]. Read More