This document discusses different types of legal systems and legal issues that companies face in the global business environment. It outlines five main types of legal systems - civil law, common law, customary law, religious law, and mixed law. It then examines two key areas of operational and strategic legal concerns for international business, including regulations around starting and closing businesses, hiring/firing, contracts, product safety, marketing, jurisdiction, and arbitration. Overall, the document provides an overview of how a company's legal environment and national laws can impact both its day-to-day operations and long-term strategic planning.

1. MBA 3
IB
Module 1
GLOBAL BUSINESS
ENVIRONMENT: LEGAL
ENVIRONMENTS FACING
BUSINESS

2. LEGAL SYSTEMS
• The purpose of every legal system is to establish a
comprehensive legal network to regulate social activities.
• Modern legal systems share three components:
I. A system of constitutional law designed for an open and
just political order
II. A system of criminal law designed to safeguard social
order
III. A system of commercial and civil law designed to ensure
fairness and efficiency in business transactions

3. TYPES OF LEGAL SYSTEMS
1. Civil Law: The civil law system is the most
widespread legal system in the world. The
distinguishing feature of the civil law system is that its
legal authority is organized into written codes. The
civil law system is derived from Roman law and is
found in much of continental Europe, Central America,
South America, and several other regions.

4. 2. Common Law: In contrast to the codified laws of the
civil law system, doctrines and rules developed over
time by judges serve as “legal precedent” in the
common law system. The common law system is
derived from the English common law and is found in
many parts of the English speaking world such as
Australia, Canada, England, the United States, Wales,
and other countries.

5. 3. Customary Law: Customary law is rooted in the
customs of a community. Common attributes of
customary legal systems are that customs may be
unwritten, customs govern social relations, and
customs are widely accepted by the community’s
members. Customary law systems are found in Africa,
the Pacific Islands, and elsewhere.

6. 4. Religious Law/ Theocratic law: The religious law
system is a legal system that is based on religious
beliefs or texts. Islamic law is the most widespread
religious law system, and it governs all aspects of
public and private life. Islamic law systems are found
throughout Africa, the Middle East, Central Asia, and
South Asia.

7. 5. Mixed Law: Mixed law refers to a combination of
elements of the legal systems described above. In the
United States, the most noteworthy mixed law system
is found in the State of Louisiana, which has elements
of both civil law and common law.

8. LEGAL ISSUES IN IB
• Here we have to focus on 2 noteworthy areas of
importance
1. Operational concerns: Involves the ways in
which business works on day to day basis
2. Strategic concerns: Refers to company’s
competitive position and long term performance

9. 1. OPERATIONAL CONCERNS
• Every company in every country must comply with local
regulations regarding operations- starting, running and
closing down business activities.
I. Getting started: It takes only 2 days to start a business in
Australia while we require 77 days to start the same in
African Nations
II. Making and enforcing contract: Australia, UK, Norway
require fewest number of enforcement procedure, while
Mexico, Panama etc can take a very long procedure

10. III. Hiring and Firing: China enjoys not only the most
flexibility in hiring and firing but also the greatest
discretion in setting employment conditions, while in
Belarus place rigid restrictions on firing
IV. Going under and Getting out: In Japan, Canada,
Hong Kong it is easy and cheap to close down your
business, Where as in India, Philippines, Serbia are
countries with Slowest and expensive procedure for
the same

11. 2. STRATEGIC CONCERNS
• As a country’s legal system and basis of rule affect a
company’s operating decisions- where to make a
product, how to market it and how to protect its unique
features- firms must take them into account when
formulating strategic plans.
• Successful companies develop strategic plans that
describe their business goals and objectives.

12. I. Product safety and liability: International companies
often customize products to comply with local legal
standards. Product liability laws are very strong in
wealthy countries than that of poorer countries.
II. Market place behavior: National laws determine
permissible practices in pricing, distributing,
advertising and promoting products or services. Many
countries prohibit cigarette ads, Germany prohibits
comparative advertising.

13. III. Product Origin and local content: National laws affect
the flow of products across borders. Here some
countries have laws that some proportion of the
product will be produced by local competitors (local
content) and other by foreign producers.
IV. Legal Jurisdiction: A Nation’s courts have the final
decision on any matter that falls within their
jurisdiction. Usually company urges a home country
court to claim jurisdiction to receive favorable
treatment on any disputes.

14. V. Arbitration: Many companies are choosing to resolve
disputes by means of arbitration, where both parties
agree on an impartial third party to settle the matter.
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