Legal Pitfalls for International Business

Legal Pitfalls for International Business
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Introduction
Business law involves all the rules required in forming and running business activities. This law covers the rules which govern how one can start a business, buy it as well as manage it. Business laws, encompasses administrative regulations, federal as well as state laws. International trade serves as a bridge between people of different countries. To analyze the benefits and necessities of business law, several economists came up with classical theories of trade. Nevertheless, some risks accompany international trade which requires proper management (Dunning, 1992).
The primary function of the government is to preserve, the health of the people as well as their prosperity. Therefore, the government has the responsibility of passing laws that protect the land through disposing products appropriately. Strict regulations on air pollution have been put in place to limit production of acid rain. Moreover, there is excess pollution as well as overfishing in the seas. Therefore, there are regulations which govern oil drilling and the size of fish caught in the sea. Unethical companies which are fettered by laws will maximize their returns in the short run, at the expense of the people living in the environment and the environment at large. Companies are therefore forced to pay for the real cost of waste product disposal and obtaining inputs which are valuable. These costs are therefore included in the total operation cost of the company.

The Act on clean air passed in 1990 by Congress, was an action in safeguarding the environment. The US environmental agency, limits the amount of pollution in the air, in the whole region of the United States. Therefore the companies have the responsibility of bearing the cost of maintaining low emissions. Therefore, this ensures all Americans of equal environmental and health protection. Pollution is not limited to the United States only. Most countries in the world are working towards reducing environmental pollution. The Kyoto Protocol amended the treaty of the United Nations concerning global warming. To reduce monopoly power abuse, U.S created laws governing commerce. The anti-trust laws created many government agencies, which were in charge of overseeing business trade as well as corporate behavior. Of all these agencies the most important one is the Securities and Exchange Commission, (SEC) which has the power of subjecting companies to investigation if the behave illegally.
The classical theories of international trade
The great personalities in science, the business operators, and schools have brought forth their ideas on issues related to trade which brought forth the main classical theories, of international trade.
Mercantilism
According to Virgil Madgearu (2010) research, when a goods trader sells to earn profitably from his rival, the state must have his share of the profit. He was the first modern thinkers in the line of economics in the 16t century and the new capitalist’s production relations. Its primary focus is on the available precious metals quantities to countries which obtain them, based on expert promotion and imports restrictions. When this theory came up, most countries were under monarchical power. Therefore, Mercantilism was an economic thinking considered to be sound. Its main pillars were; wealth constituted precious metals, these metals made money.
Foreign trade obtained the profit; export involved means of increasing the wealth of the nation. From those perspectives, mercantilists demanded state intervention in the trade with foreign partners constantly. The primary objective was to achieve a surplus on the trade balance. Between 16th and 18th century, the mercantilists thinking dominated world economic literature. There was a belief that, the states which were less developed, compared with the developed ones, need protectionism for them to grow. The developed countries, however, were for the policy of less protectionist state. Nowadays, the mercantilists’ currents fit our fashion. In Japan, USA, and France, the current was mainly met in sectors which have done away with their comparative advantage as the industry of agriculture.
The international trade theory of absolute advantage
In Adam smith’s wealth of nations, where many vague generalizations in value, income, and price rise, laid down the classical liberal school foundation. However, it was not easy to confuse, the authorities concern to increase the welfare of the nation; Adam Smith demonstrated how the mercantilist philosophy play a part in weakening the economic development base while reducing the country’s wealth despite gains of some groups of interest. To Increase the national wealth, Adam Smith proposes free trade idea, between states, which allow countries to specialize in providing services as well as goods, which offers a competitive advantage to these countries. When products are brought to the market by manufacturers, at low costs, they obtain an absolute power, unlike other manufacturers. Smith argues that, if a foreign country delivers goods cheaply than how they produce, buying from the foreign country is a better option (smith 1962).
The relative advantage theory
David Ricardo developed this method, because of unclear aspects of absolute advantage theory. The comparative advantage theory factors in the opportunity cost concept. Ricardo (1915) argues that equivalent exchanges do not always occur between countries. Furthermore, international trades come with an absolute position for the countries that participate. In international relations, countries can win, if they narrow down to goods which have lowest work amounts nationally. Countries which gained from the international trade liberal policy appreciated this theory. However, some countries opposed it like countries in eastern and central Europe (Ricardo, 1915). As a result, John Keynes revealed that free trade might lead to good export as well as unemployment export.The theory of proportion of production factors on international trade.
Two economists from Sweden came up with a model based on production factors balance theories, equating the partner countries prices, as well as the hypothesis on equating income, from the same countries. Based on the ideas of Smith and Ricardo, the authors rephrased the content with regards to the factors of production endowed in each country. The theory has undergone empirical testing, through assessing correlations between economic sectors and analyzing the input and output. Another test which was conducted revealed that the international trade participants, the constant character hypothesis have not been verified.
Firms which sell in international business need to combine, insurance, legal contracts as well as trade, in instruments of finance to minimize country risk. However, in most instances, those elements have not been yielding favorable outcomes (Jim, 2014). Therefore, foreign investors have the obligation of managing the risks directly on their own. Managers should move beyond the cost-benefit quick analysis and focus on, shaping the public debate. Companies should invest in goodwill, to improve efficiency. In markets which are less developed, foreign corporations expect tremendous ability instantly from technology exploitations, business models which they pursued in their home markets. However, those gains may fail to hold due to political costs.
When countries experience risky situations, there is a need to empower local management and protect the employees’ safety as well as safeguarding the assets of the company. Because companies have a moral obligation, of protecting the health and security of the workers, trumps above all other aspects of the business. In the event of discrimination or confiscation risk, in international markets, cash repatriation can be used to avoid forfeiture. In other words, if a sovereign will possibly target the money generated from the business, it is important to channel the money back quickly. Managing down investments; it is important to avoid additional investment of capital to minimize risks of confiscation, until when the stability of the condition is reached (Dr. Tazeeb, 2011). Companies should stop inventory replenishment from abroad, and focus on coming up with new ways of financing payroll, maintenance as well as other functions of operation through a local flow of cash.
Companies should consider the option of initiating a strategy of exit, through asset divesting in the day’s fresh, if there is a buyer who is willing. Obviously, when civil war breaks out, the option is not viable. Moving the tangible and intangible assets from any harm, if feasible is a god strategy consideration; for instance relocating the company to areas free from violence. Risk sharing is another measure, of minimizing risk. Establishing joint ventures, with partners, locally or abroad, reduces the risk of confiscation, because, the Nationals’ presence, can position multinationals below the radar. Moreover, the insurance of political risk, can also v cover the seizure risk, insurrection, discrimination and civil unrest if it is cost-effective (Ferguson & Oz-Salzberger, 2001). The occurrence of an adverse event in a given country requires assumption review of the company, which was formed previously, about that country from the standpoint of political financial and economic system risk. Conducting a post-mortem enables the management, to review the events and determine the learned lessons which they can apply in their operational countries.
Conclusion
For peaceful coexistence of business activities, the business law plays the vital role in facilitating the well- being of the environment, the employees the government and the community as a whole. Several theories have explained the necessities of international trade as well as the perspectives which favor these trading activities. However, there are several risks which countries may face when participating in business activities. To minimize these risks, managers of companies need to be up to date with the current trends and activities of the countries they invest.
References
Dr. Tazeeb, R. (2011) How Should Firm Deal With Political Risk?
Dunning, J.H. (1992). Multinational Enterprises and the Global Economy, Addison-Wesley
Ferguson, A., & Oz-Salzberger, F. (2001). An essay on the history of civil society. Cambridge: Cambridge Univ. Press.
Jim, D. (2014). Managing country risk. New York: R.R. Bowker Co.
Review of economic studies & research Virgil Madgearu. (2010). (Business Source Complete.) Cluj-Napoca, Romania: Babes-Bolyai University, Faculty of Economics & Business Administration.
Ricardo, D. (1915). Principles of political economy and taxation. New York: Macmillan.
Smith, A. (1962). Wealth of Nations, Chicago: University of Chicago Press