Legal Systems and Regulations That Have a Negative and Positive Influence on Business in Kuwait - Essay Example

A cursory search on the web reveals a litany of legal firms offering assistance with navigating the complex regulations surrounding performing business in Kuwait (Keay, 2013).

The effect of such a level of regulatory steps is of course necessary on some level; due to the fact that without regulation many less than honest firms would set up shop and take advantage of the system.  However, as has been mentioned by many scholars with regards to this particular topic, the fact of the matter is that many of these business regulations have been made by individuals that do not have a special understanding of the business process; therefore, they are not adequate or efficient in regulating and only serve to provide a net loss of utility and efficiency with regards to doing business in Kuwait.

With regards to a positive effect of this level of regulatory constraints, it can and should of course be noted that this allows Kuwait to exhibit a degree of control over the type and scope of business operations that take place within the nation.  By ensuring that a high level of business laws and regulations governing business exist, the stakeholders within the government are able to specifically manage the growth of certain key sectors that they believe represent a threat while they are able to cultivate and promote other sectors that they believe offer a net benefit to the system as a whole. 

Discuss the fact that Kuwait is a renter state and how this is impacting the business environment negatively.
One of the biggest threats to the continued viability of the government of Kuwait and other economies that are over-dependent upon the revenue from their natural resources is the fact that the other segments of the economy often atrophy.  Due to the fact that such a very high level of profitability is able to be gleaned from oil and gas, nations such as Kuwait have been known to suffer from what is known as “Dutch disease”.  Dutch disease is so termed due to the situation that exhibited itself in Holland during the 1970s when large fields of natural gas were discovered within Holland.  As these resources were tapped, the whole of economic power shifted and the natural gas industry ballooned into the largest sector of the Dutch economy.  Ultimately, this served to weaken the economic position of Holland as a whole as the nation became overly dependent upon the revenue from the gas fields and allowed other, formerly profitable, aspects of their economies to wither and atrophy.  In much the same way, the fact that Kuwait is so dependent upon the likes of Shell, BP, and Exxon as “renters” to their natural resources poses a significant threat to the continued viability of the economy.

As a means of approaching this unique threat, it will of course be the responsibility of stakeholders within the government and private sector to seek to build key aspects of domestic production in order to offset the threat of becoming dependent upon the rents that natural resource seeking firms extract from the nation.  Due to the fact that just like with the example of Holland which has previously been discussed, these natural resources will eventually run out, it will be the responsibility of these stakeholders to seek to build a solid foundation now so that when this happens, Kuwait will still be able to stand upon a solid economic footing.

Takeover defenses can impose some ethical challenges.
One of the best means to ensure that the domestic economy grows in a way as to promote further domestic security is by providing a certain level of what is commonly known as “takeover defenses”.  Just as the name implies, these takeover defenses are intended to ensure that multinational companies cannot readily snap up lucrative and profitable working operations within the economy.  However, although such an approach seems logical and sound-minded, the fact of the matter is that imposing a high level of takeover defenses within the economy has a certain level of drawback.  The drawbacks with regards to a high level of takeover defense are with regards to the level of profitability that the firms protected by takeover defenses lose each and every year because buyers are constrained from purchasing the ideas and products in their entirety.  Within the business process, there are ultimately two ways a business can make money; the first is to sell goods or services to the consumer and the second is to sell a profitable business idea to an outside investor so that he/she might continue to run the business and make money. 

However, the ethical challenge that the government must face with regards to enacting such barriers is the level of profitability and economic benefit that they are ultimately depriving the business owners within their system of.  Ultimately, a fine line must be met with regards to how the government will both seek to integrate a degree of protectionism while at the same time allowing their component business operations to make money by selling their ideas and their businesses to outsiders.  Of course, it must be understood that in order for such a situation to take place, the economy will need to have a differentiated base from which these firms can evolve.