LEGAL ENVIRONMENT

Every business firm operates within the jurisdiction of legal system. This is true of domestic as well as international firms. But the problem for the international firm is that the laws that they face in their home countries might be different from those encountered in the host countries. Advertising Laws in  West Germany, for instance, are so strict that is best advised for the international marketer to get himself  good legal counsel before framing his advertising strategy in  West Germany, Similarly there exist laws in European countries preventing promotion of products through price discounting. These laws are based on the premise that such practices differentiate buyers.

Different Laws exist not only in  the area of marketing mix variables but also for other business decisions like location of plant, level of production, employment of people,  raising money from the market, accounting and taxation, property rights including  immovable ,property and patent  and trade marks, cancellation of  agreements.

Besides  directly  influencing firm's  business  operations, laws affect the environment within which a firm operates in  the foreign country, Thus while one country may promote competition within  its markets through  its legal system, another country might try to protect its industry and thereby restrain competition. In the United States, for instance,' anti-trust legislation influences all mergers, take-over, and business practices which we in restraint of trade, Court’s verdicts in this respect are governed by paragraph one of Sherman Act.  Gillette, for example, was prevented from taking over Braun A.G. of West Germany which was an electric razor manufacturer on the grounds that it ~would distort competition.

A major problem with laws in different countries is that the legal systems of the world are not harmonized and are in fact based on contradicting legal philosophies. The legal systems that exist in different countries of the world are antecedents of one of the two legal philosophies, viz., common law and code law. Common law finds it roots in Britain and is practiced today in the United States, United Kingdom and Canada. The basis of common law is tradition, past practices and past rulings of higher courts that look upon similar problems within the accepted set of laws. Code law, on the other hand, is based on Roman law and is an all inclusive system of written rules that encompass all eventualities.  One important business implication of the two legal philosophies is that the judgments awarded in the case of a commercial dispute can be radically different.  To illustrate, let Us take the interpretation of non-fulfillment of required conditions of a contract under ‘act of god'.  What constitutes an ‘act of god’ in code law is not necessarily the same under common law. Thus while strike by workers may be looked upon as an ‘act of god’ in code law, it will definitely not be a reason for non-fulfillment of the contract under the common law.

In last few decades, efforts have been made to evolve international laws, International laws deal with upholding orders. Originally these laws recognized only nations as entities, but today these laws also incorporate role played by individuals. International laws may be defined as a set of rules and regulations which the nations consider binding upon themselves. This definition brings out two important characteristics of international law. One there is absence of the existence of a comprehensive legal system. There is truly no comprehensive body of law because as stated earlier international commercial law is of recent birth. This has had a direct bearing upon the existing administering authorities. As of today, there are only a few international bodies for administering justice.  These include international Court of Justice founded in 1946 and the World Court at Hague. Second characteristic  of the international law relates to  the fact that no nation  can  be  forced  into these  rules  as stated in  the phrase  'consider binding upon  them'.  Since all nations recognize the sovereignty of the legal systems, international judgments are, therefore, based on the premise of good humanity and not on the basis of any particular country's legal system.

In the absence of laws having jurisdiction over sovereign countries, a major problem faced by the international business firms is which country’s laws, viz...  Host country’s or home  ' county’s or third country’s laws, shall be binding in the case of a dispute. Firms also need to be aware of different modes of the settlement of trade disputes and role of international Chamber of Commerce’ Court of Arbitration.