Business environment 1

Legal Environment • Legal environment refers to the legal system obtaining in a country • The legal system than refers to the rules & laws that regulate behaviour of individuals & organizations • Failure to comply with the laws means that penalties will be inflicted by the courts depending on the seriousness of the offence • The legal system of a country is of immense importance to inter-national business • A country’s laws regulate business practice, define

the manner in which business transactions are to be carried out & set down the rights & obligations of those involved in business deals • The legal system prevailing in India should be emulated by all the countries • The legal resource is available to all – Indian or foreigners • Justice is meted to any petitioner, depending on the merits of the case • GE, for example, got back the entire investments of $ 115 million from Dhabol once the latter vent bust • Scott Bayman, the CEO, admitted that nowhere else this would have been possible

• Laws do not change overnight • They change over a long period of time & may lag behind important cultural changes which are taking place in a country • In many cases, it is not cultural changes which invite changes in the law but ambiguities in the law themselves which are challenged in the courts • The legal system in a country is also influenced by its political system • The government of a country defines the legal framework within which firms conduct business & often the laws that regulate business reflect the rulers’ political ideology

• Totalitarian states, for example, tend to enact laws that severely restrict private enterprise, while democratically elected governments pass laws that are pro-private enterprise & pro-consumer

Systems of Law • There are four basic legal systems prevailing around the world : 1. Islamic Law 2. Common law 3. Civil or Code Law 4. Marxist Legal System

Islamic Law • Islamic law, also called theocratic law, is derived from the interpretation of the Quran & teachings of Prophet Mohammad • The word Islam translates into English as ‘ submission’ or ‘surrender’ • Muslims submit to the will of God, who decrees what is proper & what is improper • God’s commandments, as revealed to Mohammad, provide a path, or shari’a, for true believers to follow

• The shari’a is not a coded law • It provides ethical & moral precepts as well as rules of public order • Countries from Philippines to the former Soviet Union have substantial Muslims who follow Islamic cultural & legal traditions & Islamic traditions dominate the legal & social environment of most Arab nations • Islamic law is the product of divine revelation • It cannot be changed as the people believe in the will of God • The immutability of the law requires Islamic nations to look to other sources of law to govern & resolve

disputes • Among the unique aspects of Islamic law is the prohibition of paying or receiving interest • The Islamic law of contracts states that any given transaction should be devoid of riba , which is understood as unlawful gain by way of interest or usuary • Prohibiting receipt & payment of interest is the nucleus of the Islamic system • Prohibition against interest affects banking & business practices severely • However, risk sharing, property rights, individual rights & duties, & sanctity of contracts are advocated

• Investments in alcohol, gambling, & casino’s are prohibited • Followers of Islam & their financial institutions have had to develop alternative financing arrangements to source & finance capital • Businesses often rely on leasing arrangements, rather than borrowing money, in order to obtain fixed assets • In Iran, banks often charge up-front fees that act as a substitute for interest payments, & depositors receive shares of the bank instead of interest payments

• The international manager should have knowledge of the religion’s tenets & understand the way the law may be interpreted in each region • Regional courts can interpret Islamic law from the viewpoint of fundamentalists or they may use a more liberal translation • The inter-national manager should also know that the Islamic legal system places emphasis on the ethical, moral, social, & religious dimensions to enhance equality & fairness for the good of society

Socialist Law • This law evolves from the Marxist socialist system & continues to influence regulations in former communist countries, particularly those from the former Soviet Union, as well as present day China, Vietnam, North Korea, & Cuba • Ideology plays a crucial role in socialist law • Unlike a civil law code, which can be used by governments of widely differing political viewpoints, socialist legal codes are designed to achieve personal & societal transformation

• The legal system is not just a set of institutions, but means to achieve a Communist society, where each gives according to his or her abilities & takes according to his or her needs • Communist ideology permeates socialist law • The legal environment provides for state ownership of the means of production & distribution, including most businesses • It also calls for state ownership of land &, in most cases, collective use of land • There is little tolerance of private property rights • The code support centralised planning, allowing the cultural government to set national & uniform

standards for business practices • At the centres of the socialist legal tradition is the Communist party • The party is the keeper of the ideology of the state & through its power to nominate officers, staff the bureaucracy, & monitor workplaces, it determine the norms that become law • Russia & China are the two countries which comes to one’s mind while discussing socialist law • Each country has taken a difference direction in its political & economic growth • Russia is moving towards a democratic system, whereas China is attempting to activate private

sector within a multi-component or mixed economy in a socialist legal framework • Both the countries are busy with passing laws to suit changed political environments • China has implemented over 150 laws but most laws are vague • Russia’s experience has been identical • Vaguely worded laws have been passed without mechanisms for implementation • These countries are struggling with universal issues such as states’ rights, freedom, rights of property owners, ‘taxation’ & price control

2. Common law • Common comes from English law & it is the found- ation of the legal system in the US, Canada, England, Australia, New Zealand, India, & many other countries • Common law is based on the cumulative wisdom of judges’ decisions in individual cases • In common law countries, vast areas of law, such as contracts, torts, & agency are controlled by collections of principles deduced from specific disputes resolved in an adversary process

• A key concept in common law is that similar disputes should achieve similar legal results • Thus, parties to a dispute will look for similar, earlier cases with favourable decisions • These earlier cases have precedential value to a current dispute • If an earlier case is from a higher court in the same jurisdiction, a subsequent judge is expected to follow the earlier decision • This practice of relying on past precedences provides the stability required for business people to plan their future action • But there is also the flip side

• Laws affecting business practices vary somewhat in countries which follow common law, creating potential problems for the not so well-informed inter-national business manager • For example, manufacturers of defective products are more vulnerable to lawsuits in the US than in New Zealand as a result of evolutionary differences in the law of negligence in the two countries • Legislation & its accompanying regulations are another major source of law in common law countries • Cases provide rules for individual, specific circumstances, whereas legislation & regulators

offer blanket rules • Finally, tradition is a major source of law in common law countries • The customary practices of an industry or of government institutions influence the way a judge will look at a particular case

Civil or Code Law • The civil law system, also called a codified legal system, is based on a detailed set of laws that make up a code • Rules for conducting business are a part of the code • Over 70 countries, including Germany, France, & Japan follow civil law • The civil law system originated with the Romans in the ancient times, who spread it throughout the Western world • The roles of judges & lawyers make civil law different from common law

• In a common law system, the judge serves as a neutral reference, defining points of law & ruling on various motions put forth by the opposing party’s lawyers • These lawyers are responsible for developing their client’s cases & choosing which evidence to submit on their client’s behalf • In a civil law system, the judge takes on many of the tasks of the lawyers, for example, determining the scope of evidence to be collected & presented to the court • The distinction between common law & code law systems becomes more pronounced in protecting

intellectual property • Under common law, ownership is established by use; under code law, ownership is determined by registration • In some countries where civil law prevails, certain agreements may not be enforceable unless properly notarised or registered ;in a common law country, the same agreement may be binding so long as proof of the agreement can be established.

4. Comparative Law • Comparative law is not a source or system of a law but an emerging discipline that examines differences between legal systems prevailing in different countries • Before a manager is posted on a foreign assignment, he or she is briefed about the host country’s legal system • Understanding the legal system of a host country is not enough • The inter-national manager needs to know how the laws of one country compare with those obtaining in another nation

• Taking own country’s experience & generalising them as applicable to other countries may be a costly mistake • The comparison of foreign criminal laws is important to business people who find themselves under the control of a foreign government & accused of crimes • For example, a businesswoman was arrested in Nigeria for selling oil without a licence • The penalty (changed after she was arrested) was death • She was tried & finally acquitted - the acquittal occurred because of active intervention by the counsel & US congressional representatives

• Another interesting case relates to a consultant named Flynn who was assisting a US printing co. that was unable to comply with the contract terms with a Mexican co. • Flynn flew to Mexico to resolve the issue & was arrested & sentenced to six years in prison • After three years of imprisonment, the conviction was overturned on the ground that he had not been a party to the contract • It is not only criminal law which needs comparison • Foreign investments law also invites comparison • Many countries, including East European, Latin & South American ones, have been changing their laws

to attract foreign capital, including laws on government approval for foreign investment & technology transfer agreements • Some countries have removed restrictions on profit repatriations, movement of capital, & form of ownership & lowered tax rates as incentives • Each country, depending upon its stage of develop- ment as well as past experience with foreign invest- men, will develop unique investment codes • Assumptions about what is permissible for business in a particular country are dangerous because while one country allows wholly owned foreign companies, other nations may require some level of local participation

International Dispute Resolution • Legal disputes can arise in three situations : between governments, between a firm & a government, & between two firms • Disputes between governments are resolved through the intervention of the World Court at the Hague & the Inter-national Court of Justice, the principal judicial organ of the United Nations • Disputes of the other two situations must be handled in the courts of the country of one of the parties involved or through arbitration • Which country’s court should handle a dispute is a relevant question

• Often, contracts contain jurisdictional clauses which specify that the law of a particular country will apply, as agreed by the parties to the contract • Often, the law of England is specified even though neither party resides in the UK • This is because English law has dealt with questions of inter-national trade for many countries, is well documented, & has ready answers for questions arising from cross-border transactions • If a contract does not contain a jurisdictional clause, then the law of the country in which the case is heard (normally the defendant’s nations, because the defendant cannot be compelled to attend a court

outside his or her own country) will apply • Jurisdictional issues within the European Union are covered by the Brussels Convention of 1982 & the Rome Convention of 1990 which establish the circumstances in which cases will be heard • Either the contract of sale will name a country, or the country with ‘the closet connection’ with the country must be chosen • The principal means of resolving inter-national disputes are conciliation, arbitration, & litigation • Most inter-national businesses prefer a settlement through arbitration rather than by suing a foreign country

Conciliation • Also known as mediation, this is a non-bonding agreement between parties to resolve disputes by asking third party to mediate • The function of the mediator is to carefully listen to each party & to explore, clarify, & discuss the various practical options & possibilities for a solution with the intent that the parties will agree to it • Unlike arbitration & litigation, conciliation session are private & all conferences between parties & the mediator are confidential ; the statements made by

the parties may not be disclosed or used as evidence in any subsequent litigation or arbitration • The track record for the conciliation process is excellent, with a majority of disputes reaching settlement & leading to the resumption of business between the disputants • Conciliation is considered to be especially effective when resolving dispute with Chinese business partners because they feel less threatened by conciliation than arbitration • The Chinese believe that when a dispute occurs, informal, friendly negotiation should be used first to solve the problem; if that fails, conciliation should

be tried • In fact, some Chinese cos. may avoid doing business with companies that resort first to arbitration • Conciliation can be either formal or informal • Both sides agreeing on a third party to mediate can establish informal conciliation

Arbitration • If conciliation is not used or an agreement cannot be achieved, the next step often used is arbitration • The usual arbitration procedure is for the parties involved to select a disinterested & informed party or parties as referee to determine the merits of the case & make a judgment that both parties agree to honour • In most countries, decisions reached in formal arbitration are enforceable under the law Some of the more active are the following :

• The Inter-American Commercial Arbitration Com- mission • The Canadian-American Commercial Arbitration Commission (for disputes between Canadian & US businesses) • The London Court of Arbitration (decisions are enforceable under English law & English courts) • The American Arbitration Association • The Inter-national Chamber of Commerce • The Commercial Dispute Resolution Center of the Americas • The procedures used by formal arbitration organisations are similar

• Arbitration under the rules of the International Chambers of Commerce (ICC) affords an excellent example of how most organisations operate • When an initial request for arbitration is received, the Chamber first attempts conciliation between the disputants • If this fails, the process of arbitration is started • The plaintiff & the defendant select one person each from among acceptable arbitrators to defend their case & the ICC Courts of Arbitration appoints a third member, generally chosen from a list of distinguished lawyers, jurists, & professors • It may have a more streamlined process of getting

to a hearing, especially when compared to the expensive & cumbersome discovery process in countries • A major factor in favour of arbitration is its lack of publicity • Unlike court proceedings, which are open to the public & often result in published decisions, arbitration is a private process • Other advantages of arbitration include flexibility in rules on the admissibility of evidence, compellability to implement decisions, & limited rights of a party to appeal • In order to arbitrate a dispute, the parties must

agree to do so, usually in their initial contract • Arbitration has become popular in both domestic & inter-national business agreements • An arbitration clause may be inserted in an employment contract, credit card agreement, cruise ship ticket, or bank account application, as well as in big contracts

Litigation • Seeking justice in a court is generally avoided by parties to an agreement • The costs incurred, the frustrating delays involved, & extended aggravation make victories in law suits spurious • There are other grey areas also in litigation : 1. Fear of creating a poor image & damaging public relations 2. Fear of unfair treatment in a foreign court 3. Difficulty in obtaining judgment that may

otherwise have been possible in a mutually agreed settlement through arbitration 4. The relatively high cost & time required to settle the dispute. The issues of paying compensation to the victims of the Bhopal gas tragedy has been only recently decided though decades have gone by since the disaster occurred 5. Loss of confidentiality. Unlike arbitration & conciliation that are confidential, litigation is public • The three approaches to dispute settlement – conciliation, arbitration & litigation have their advantages as well as limitations • To sum up, we may state that to settle any dispute

(inter-national or domestic), four steps are needed : • First, try to placate the affected party ; • Second, if this does not work conciliate ; • Third, if this also fails, seek arbitration, & • Fourth, if arbitration fails ; resolve through litigation . Though litigation is recommended as one of the options, a wise course of action would be to seek a settlement other than by sueing

Areas of Concerns for MNCs • The immediate legal issues that bother MNCs most are the following : a) Protection of intellectual property b) Product liability & safety c) Competition among businesses, d) Payment of bribes & other corrupt practices e) Advertising & sales promotions, f) Formation & termination of contracts, g) Shipping of goods, h) Labour legislations & i) Environmental laws

M N C Protection of IPRS Contracts Advertising & Sales Promotion Product Liability & Safety Competition Laws Bribery & Corruption Environmental Laws Labour Laws Shipping of Goods

Intellectual Property • Property that results from people’s intellectual talent & abilities is called intellectual property & includes designs, novels, patents, trade marks, copyrights, computer software, & secret formulae as the one used for making Coca Cola • It is possible to establish ownership rights over intellectual property through patents, copyrights, & trade marks • A patent grants the inventor of a new product or process exclusive rights of manufacture, use, or sale of that invention

• Copyrights are the exclusive legal rights of authors, composers, play-wrights, artists, & publishers to publish & disperse their work as they wish • Trade marks are designs & names, often officially registered, by which business people designate & differentiate their products • The philosophy behind intellectual property laws is to reward the originator of an invention, book, musical record, clothes design, software & the like, for his or her idea & effort • Such laws are a very important stimulous to innovation & creative work • They provide an incentive for people to search for

novel ways of doing things & reward creativity • Country vary widely in their intellectual property laws • While many countries have stringent intellectual property laws in their books, their enforcement has been lax • This has been the case even among the countries that have signed important inter-national agreements to protect intellectual property, such as the Paris Convention for the protection of industrial properties which has 96 countries as signatories to it • Weak enforcement encourages the piracy of intellectual property • China & Thailand are the worst offenders in Asia.

Product Liability & Safety • Most countries have laid down product safety laws which bind manufacturers to produce safe products • Products liability holds manufacturers & sellers responsible for damage, injury, or death caused by defective products • Affected parties can sue both for monetary compensation through civil law suits, or imprisonment through criminal lawsuits • Civil lawsuits are frequently settled before cases are filed in courts • The United States has the toughest product liability

laws in the world, with Europe a close second • Less developed & emerging countries have the weakest laws • By the same token, insurance premiums & legal expenses are greater in those nations with strong product liability laws • Awarded damages tend to be several times larger in the United States than in other developed countries • Conforming to different inter-national laws can be a complex process • Consider a product as seemingly straightforward as Chinese-made teddy bears • Bears that were assembled in China with parts

made all over the world must meet manufacturing & safety specifications for customers in Brazil, Canada, the European Union, Japan, Mexico, & the United States • Before a teddy bear can be shipped to the United States, four different certificates from four different labs must be obtained • Each one certifies that the toy complies with various US federal regulations, including ASTM F-963, the US voluntary toy-safety standard • Teddy bears headed for Brazil need certification for a recognised US or Brazilian laboratory

• Shipments headed for Japan must comply with Japanese toy-safety regulations & those destined for sale in the European Union must comply with ENZI, the European safety standard • Enforcement of product liability laws differ from nation to nation • In the United States, for instance, tobacco companies are under attack for failing to warn consumers about the health effects of tobacco & nicotine • In countries like India & Sri Lanka, however, they are free from scrutiny by public-welfare organisations Because of far less stringent regulation, the biggest market for US cigarette

makers is Asia, followed closely by eastern Europe • Philip Morris, the world’s biggest tobacco co., increased inter-national sales by 80 per cent (to 660 billion cigarettes) between 1990 & 1997 • In Poland, market potential is still quite large despite the curbing of cigarette advertising, raising of taxes, & banning of smoking on the job • About 50 per cent of all Polish adults smoke, compared to 25 per cent in the United States

Competition among Businesses • Competition laws are enforced to break monopolies & protect consumer interests • It is truism that consumer interests are better protected by encouraging competition among manufacturers & sellers of products • In India there is the Competition Law • Other countries too have antitrust laws • The US has antitrust legislation, as also in Germany • In Japan, the fair Trade Commission enforces antitrust laws

• From South Korea to Brazil to the Czech Republic, all countries have enacted competition laws • All antitrust laws are identical in their focus on two types of activities • First, competition laws tend to prohibit agreement between competitors that restrict competition • Secondly, such laws prohibit the abuse of a dominant market position

Bribes & Corrupt Practices • Bribery is a deliberate attempt to persuade someone (usually in position of power & authority) to act improperly in favour of the party offering bribes in the form of money or gifts • Bribery is the root cause for corruption • Corruption then may be understood as the abuse of public office for private gain • Inter-national businesses are known to bribe officials to get favours • Investigations of the US based MNCs in the 1970s &

of Italian firms in the 1990s, along with much anecdotal information from several years, indicate that the practice has been widespread.

Advertising & Sales Promotions • Multinational businesses spend huge sums across the globe for advertising their products • Like advertising in domestic markets, there are temptations to make exaggerated claims & tell un- truths while conveying messages about the product to be sold in inter-national markets • Almost all nations have laws to prevent such false claims • The EU specifically excludes fraudulent advertising from its general protection of commercial speech

• Even during the late 19 th century, when there were no specific laws to protect consumers (those were the days of unbridled capitalism), courts found ways to save the users • In a country with no consumer protection laws, English courts protected consumer by invoking ancient contract law principles to news paper advertising • Advertising can also be outlawed even if its content is perfectly true • Advertising aimed at children, for example, is closely regulated

• More than 40 countries prohibit or limit such advertising, reasoning that children cannot intelle- gently assess the contents of commercial ads • Some countries insist of the use of local language which complicates cross-border advertising • Indonesia, for example, insists on use of Bahasa in bill boards • But Bahasa happens to be a second language in the country of 180 million people • Similarly in France, every word used in advertising must be in French, even if the French people themselves use English • Almost all countries limit the advertising of tobacco & alcohol

• Starting in 1993, France banned all tobacco & alcohol advertising – only exception being French wine • Bulgaria, has banned all tobacco advertising outside of tobacco shops & threatened violators with a $ 50,000 fine per violation • In Britain, tobacco commercials are not banned but the citizens believe the self-imposed & subjective industry guidelines • Sales promotions are marketing activities that stimulate consumer purchases • As is true in advertising, there are laws restricting sales promotional activities

• Some countries prohibit premiums or free gifts • In some countries, laws control the amount of discount given to retailer, others require permits for all sales promotions, & at least in one country, no competitor can spend more on a sales promotion than any other company selling the product.

Contracts • A contract is an agreement by the parties concerned to establish a set of rules to govern a business transaction • Contract law plays a major role in inter-national business transactions because of the complexities arising from the differences in the legal systems of participating countries & because the host government in many developing & communist countries is often a third party in the contract • Both common law & civil law countries enforce

contracts, although their means of resolving disputes differ • Under civil law, it is assumed that a contract reflects promise that will be enforced without specifying the details in the contract ; under common law, the details of promises must be written into the contract to be enforced.

Shipping of Goods (Carriage of Goods) • Three subjects are relevant in this context ; 1. International Carriers’ Liability 2. Ocean Shipping 3. Insurance

International Carriers’ Liability • The liability of an air carrier for death or personal injury of a passenger or damage to property is determined by the Warsaw Convention of 1929, as amended in 1999

• The Warsaw Convention is an international convention which regulates liability for international carriage of persons, luggage or goods performed by aircraft for reward. • It was signed in 1929 in Warsaw . It was amended in 1955 at The Hague and in 1975 in Montreal . • In particular, the Warsaw Convention has the following rules: • carriers issue passenger tickets; • carriers issue baggage checks for checked luggage; • there is a limitation period of 2 years within which a claim must be brought (Article 29); and a carrier's liability is at least:

250,000 Francs or 16,600 Special Drawing Rights (SDR) for personal injury; 17 SDR per kilogram for checked luggage and cargo, 5,000 Francs or 332 SDR for the hand luggage of a traveller. On April 1 , 2007 , the exchange rate was 1.00 SDR = 1.135 EUR O or 1.00 SDR = 1.51 USD . The Montreal Convention , signed in 1999 , will replace the Warsaw Convention system, once Montreal has been ratified by all states.

2. Ocean Shipping • Two types of vessels are involved in ocean shipping - chartered ships & common carriers • With a charter, the ship’s owner agrees to carry a particular co’s. goods • A shipper with a large cargo of goods & commodities may decide to charter an entire ship to take goods to overseas markets • A common carrier, on the other hand, will carry anyone’s goods by scheduled vessels • The liability of the carrier (chartered or common carrier) for damage or loss to ocean-going goods, in most nations of the world, is governed by the Hague

Rules • As per these rules, the primary obligation of the carrier is to provide a seaworthy ship • Its liability for damage to cargo resulting from errors in navigation, perils of the sea, & fire is limited • The losses usually fall on the insurer of the cargo & vessel.

Insurance • Insuring cargo is essential element in inter-national business • The potential for damage & loss to goods, particularly during ocean shipments that are more lengthy & more hazardous than air shipments, is tremendous • Such loss is sought to be minimised through insurance • Historically, marine cargo insurance covered two separate categories of underwriting risks : a) marine risks, & b) war risks

• Marine risks included, among others, perils of the sea, piracy, fire, thieves & barratry (the serious misconduct of the captain or crew) • War risk included the risk of aerial bombardment, mines, torpedoes, taking or seizures by governments factions, or belligerents in wars, civil wars, & rebellions • Today, it is common to obtain insurance to cover all risks, rather than to rely on a listing of specific risk covered • Some insurance policies contain the clause “free of particular average” (FPA) which means that the underwriter will not pay for any partial loss unless

the loss is general to the entire cargo • If a ship jettisons some cargo in order to save the ship,all shippers & the ship owner suffer proportionately • If a shipper is shipping wool that is partially destroyed but the other shippers do not suffer any loss, her loss would be “particular” & thus not pay- able under an FPA clause • Some policies state “FPA unless 10 per cent” • In this situation, the insurer will pay for partial losses exceeding 10 per cent of the valuation of the cargo.

Labour Legislations • Yet another area of concern for an MNC relates to labour legislations prevailing in different countries • Three main issues relating to labour are : 1. Employee dismissals 2. Working conditions 3. Discrimination

Employee Dismissals • Any employer believes that he should have the right to terminate the services of an employee the moment the individual ceases to be productive • This is the right an employer in the US enjoys • Law in the UK mandates that an employer consult with the appropriate trade union before making a dismissal • If the workforce is to be reduced by ten or more employees, a consultation must take place sixty days prior to termination • Under German law, the employer should consult a

work council which must approve the dismissal • If it does not, the employer may appeal in labour court, but is likely to lose the appeal • In Japan, an individual is expected to hold a job in the same co. for a lifetime • But conditions are changing on the labour front • US businesses, for example, are being influenced more & more by European & Japanese practices • The employees are now given unpaid leave to care for family members & are guaranteed jobs back after such leave & are warned in advance of any plant closure • Japanese, on the other hand, are being influenced by

American & European practices • During the recession of the 1990s, for example, giants such as Nippon Telephone & Telegraph, NKK Corporation, & Nissan Corporation successfully implemented reduction in their staff strengths • These firms did not actually lay off employees, but effected the reductions through normal attrition, intra-company transfers, & transfers to subsidiaries • But because many employees rejected unattractive transfers & many subsidiaries went out of business, the purpose was well served • The days of lifetime employment are actually numbered

• In the post-liberalisation period, India has witnessed a series of layoffs & voluntary retirement schemes being implemented both in public sector & private sector units • Change on the labour front notwithstanding, when acquiring a co., an MNC is required to adhere to its existing employment arrangements • In other words, when acquiring a manufacturing unit, one may be acquiring the collective bargaining agreement that the seller had negotiated with the trade union prior to the purchase of the company

Working Conditions • In many countries, conditions under which workers work are unsafe & unhealthy • Child labour is also grossly abused • One of the most common & dangerous of unsafe practices is the blocking & locking of all exits in manufacturing facilities as a low-cost measure to prevent pilfering • This practice has caused thousands of workers to be trapped burnt alive when fires broke out in such buildings • For example, a fire in a locked toy factory near

Bangkok killed more than 240 workers & injured hundreds of others • In a separate incident, a fire in a locked facility killed 80 young women in Dongguan, China • The lack of ventilation in many factories increased the incidence of tuberculosis & sinusitis among workers • A second, common safety issue is the use of antiquated & poorly-maintained equipment • Such equipment causes the rate of workplace injuries to balloons • In fact, in many developing nations, work-related injuries have doubled in the last five years.

Child Labour • Child labour is a widespread problem in developing countries • When children under age 14 work, their labour time at minimum disrupts their schooling & in a majority of cases, prevent them from attending school altogether • Compounding this, the health of child worker is significantly worse, even accounting for their poverty status, than that of children who do not work ; physically stunting among child labourers is very common

• In addition, a large fraction of labouring children are subject to especially cruel & exploitative working conditions • The Inter-national Labour Office (ILO), a U.N body that has played a lead role on the child labour issues, recently estimated that some 120 million children in developing countries between the age of 5 & 14 are working full time, with another 130 million working half-time • Some 61% of the 250 million working children, or nearly 153 million live in Asia, while 32%, or 80 million, live in Africa, & 7%, or over 17 million, live in Latin America

• Inter-national trade treaties threaten such labour practices • Most developed nations have attempted to make non-enforcement of employment laws a violation of inter-national trade agreements

Discrimination • Discrimination at workplaces still exists even though global firms are increasingly becoming cosmopolitan • Discrimination is made on origin, religion, & gender • In a few countries, the law actually requires discrimination based on religion or nationality • When a country is synonymous with an ethnic group that ethnic group sometimes justifies preservation of its ethnic identity by methodical exclusion of those outside it • For example, ethnic Kuwaitis & Jordanians have excluded Palestinian co-religionists from key jobs &

properties • Gender discrimination is widespread • Worldwide working women consistently earn less than men • In Japan, women earn only 63 per cent of what men do • In the United States, the figure is 74 per cent • Northern European nations are some what better – such as Sweden & Denmark, at 87 & 88 per cent, respectively • But others are measurably worse ; • In some Islamic nations, restrictions are imposed on women’s in workplaces

• In many countries, however, anti-discrimination laws & provisions are in place • For example, Article 7, 48, 52, & 59 of the EU treaty forbid different type of discrimination within the Union on the basis of nationality • Law-makers particularly focused on the issue of maternity leave • An EU directive now provides for a minimum of fourteen weeks maternity leave & an allowance of at least 75 or 80 per cent of net salary • It further stipulates that pregnant workers cannot be fired

• In Hong Kong, a new law provides for ten weeks maternity leave at two-third of the woman ‘s latest salary • India requires six weeks leave at full pay • The Equal Remuneration Act in India underlines equal pay for equal work & prohibits any discrimination in payment of wages

Environmental Laws • Inter-national environmental law has lately become a topic of considerable interest • There have been large-scale inter-national environmental disasters, such as the Chernobyl nuclear plant disaster, the Samdoz Chemical spill into the Rhine river, & various oil tanker spills • At the same time, concern over the possible thinning of the o-zone layer & global warming has intensified • Political parties, with environmental protection as main plank, have been formed around the world & in countries like Germany they have become part of

governing coalitions • Consequently, nations have been enacting legislations & entering into treaties concerning the environment.

Environmental Issues • In the first place, it is the rich countries that talk about environment & enact laws to protect the ecology • Poor nations tend to oppose extensive environmental regulation because it impairs their ability to profit from less-sophisticated production procedures • Poor countries are more concerned about growth than about environmental protection • Secondly, wealthy countries enact environmental laws to protect themselves from foreign competition

• The EU has been accused of this in order to protect its meat & dairy products industry, which has been battered by foreign competition • In 1993, the EU traced an outbreak of disease in Italian livestock exported to Croatia • Rather than banning Italian hoof & mouth Croatian meat, the union banned meat from the entire former East Bloc • Needless to say, the arbitrariness of banning meat from half a continent on the basis of an outbreak in a region of a small nation, especially while not banning meat from only the country where the disease had occurred, struck many producers as unfair

• The EU has no exception, India also has imposed similar ban on import of poultry items • In order to check the spread of bird influenza from across the borders, India first imposed ban on imports of wild birds, hatching eggs, bird semen, fresh meat, & processed poultry from Pakistan, Thailand, South Korea, Cambodia, Vietnam & Japan • Later on January 28, 2004, the country extended the ban on imports from all countries • Third, rich countries seem to have a vested interest in enacting environmental laws & imposing them on other nations • It is the wealthy nations which manufacture

machinery & equipment to check pollution of the environment • These countries are well aware of the fact that environmental industry is big business.

Protective Measures • Historically, countries were seeking arbitration to resolve any dispute relating to pollution of the environment • In other words, the polluting country & the country which suffers the consequence of pollution would agree to arbitrate • Arbitration can proceed only when both the countries agree • This rarely happens because a nation usually does not voluntarily subject itself to a proceeding on pollution generated from its own territory

• The second way of fighting pollution by any nation is to enact legislation outlawing import of the offending products • Often, the offence lies not in the product but in its manufacturing process • Regulating such offences becomes difficult.

Regional Approaches • These are : 1. Banning export of hazardous material, as is done in the US through its Federal Insecticide, Fungicide, & Rodenticide Act; 2. The single European Act 1985 for the EU; 3. North American Environmental Treaties & NAFTA; 4. Regional marine treaties among nations sharing bodies of water; & 5. The ASEAN Agreement on the Conservation of Nature & Natural Resources for Asian countries.

Global Solutions • Many environmental pollution problems are global in nature • The United Nations began its work in this arena in December 1972 when it adopted the Stockholm Declaration on the Human Environment & founded the United Nations Environmental Programme (UNEP) • UNEP has become the catalyst for the formulation or adoption of almost 30 binding multilateral instruments & ten sets of non-binding environmental guidelines & principles

• Some of the global measures are : i) the WTO; ii) global ban on toxic substances such as PCBs, DDT, dioxins, & furans; iii) the Basel Convention on Transboundary Movements of Hazardous Wastes & their Disposal; iv) the Conventional on Inter-national Trade Endangered Species; v) the Montreal Protocol ;& vi) the Climate Control Convention.

Business environment 1

More Related Content

What's hot

Similar to Business environment 1

More from anmolverma24

Recently uploaded

Business environment 1