International Commercial Risks April 1, 2013 International Commercial Risks – Business is continually growing on a global level leading to international business partnerships, agreements, and trades. During these types of business relationships disputes are common (University of Phoenix, n. d. ). If a dispute occurs one party may chooses to take legal action against the other party. Making the decision to take legal action businesses must make considerations prior to proceeding. Making the right decisions can build a strong relationship between parties.
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Considerations to take include contracts, local law, and local customs and culture. Steps may be taken to minimize risks in international business agreements as well. The first consideration that needs to be made when considering legal action against a business based in another country is contractual agreements. Review of what agreements the two parties have made through an agreed contract should take place. In reviewing the contract notice if a choice of law clause or a forum selection clause is present. These factors effect what steps a business must take and what efforts the business is willing to give in taking on legal action.
A company should protect its “interests in the foreign country against all eventualities” (University of Phoenix, n. d. ). If a choice of law clause is present in a contract it explains what set laws the parties have agreed to follow, such as the United States Law, foreign law, or international law. This is also covered by a forum selection clause. The forum selection clause is set to specifically determine if a dispute is to be taken to the United States court, foreign court, or arbitration. Arbitration is favored by the World Trade Organization (WTO).
Members of the WTO are preferred to attempt arbitration before any other legal action (Repa, 2013). Arbitration allows a judgment and agreement to be reached without involving courts keeping a low-profile on the dispute (Melvin, 2011). Arbitration can be binding or nonbinding. Binding arbitration involves the parties to waver rights to a trial and locks in the decision of the arbitrator. The decision reached through binding arbitration cannot be appealed unless according to Repa (2013), a “fraud or misuse of power has taken place” (Binding Versus Nonbinding Arbitration).
Nonbinding arbitration allows an appeal to be filed by one or both parties. A trial may be requested in this case. In addition to contract considerations one should be aware of local culture and local laws involved. In the case of the CadMex simulation, provided by the University of Phoenix, culture was brought to attention in considering legal matters based on male employees who refused to shave their facial hair based on a religious practice for the time frame of one week. The company policy clearly stated that employees’ facial hair is to be clean shaven.
CadMex suspended the employees based on breach of contract for company policy. The employees filed a lawsuit. CadMex should consider the local culture in this scenario. In considering the local culture CadMex can consider making accommodations to the employees in order to build a better business relationship within the country of Candorea so long as the accommodations are not too burdensome. CadMex’s best option to satisfy all parties involved is to revoke the suspension. Providing accommodations does not have to be overly burdensome to CadMex.
One accommodation is to provide hairnets to the selected employees during the time the employees are observing the religious belief preventing them from shaving their facial hair. This option satisfies the local culture, gaining support from the community without being overly burdensome (University of Phoenix, n. d. ). Local laws are important when working with a business in another country. The laws of the region most likely differ from those the business is accustomed to. One essential step in understanding the laws and ensuring the business follows the laws is by selecting local counsel.
Local counsel provide expertise on the local law leaving little, if any, concern of lack of legal knowledge. The selection is typically done by the lead counsel of the company (University of Phoenix, n. d. ). This is beneficial because one expert selects another expert providing the best representation. In order to minimize those risks a business should take specific steps. First a contract should be signed by all parties involved in the business relationship. The contract should include policies of each business and what each agrees to commit to.
A choice of law clause should be included along with a forum selection clause. Additionally, legal counsel local to each country should be consulted. These steps simplify the steps to be taken if any dispute or disagreement arises. When local laws conflict with domestic law the law of the jurisdiction of the business conducted prevails (Melvin, 2011). Te operation of business must follow the local laws because this is the ruling law of the territory the business is located. This is another example of why am understanding of local law is important.
Local customs prevail over organization customs when a conflict occurs. It is important for a business to consider local customs of where it is doing business. Business relationships can build stronger through the knowledge and respect in honoring the local customs provides. Additionally, some countries’ law is based on religious and cultural beliefs. Ignoring the local customs may turn into a legal issue for the business. This is exemplified through the previously mentioned conflict of CadMex and the employees seeking retribution for dismissal based on a religious intolerant experience.
Through the CadMex simulation, provided by the University of Phoenix, an understanding of positive and negative factors of sublicensing are understood. The simulation is based on a viral outbreak in Candorea. The manufacturer, Gentura, cannot keep up with production demands of Viroblax, the medication owned by CadMex. The Candonean government considers suspending the licensing rights of CadMex based on the wellbeing of the Candonean citizens experiencing this medical emergency. CadMex has the option to propose sublicensing to the Candonean pharmaceutical companies.
The choice to sublicense provides solutions but also carries some negative effects. Doing so would avoid a suspended patent. It would also allow CadMex to continue to receive royalty payments. It also helps CadMex’s public image. However, concerns involed in sublicensing include matching quality standards, production requirements, and the cost of training and building (University of Phoenix, n. d. ). When a business finds itself in a legal dilemma or dispute consideration must be made prior to choosing to take legal action. Cost and time is one factor.
However, businesses have several other factors to consider including contract, jurisdiction, customs, culture, local law, and domestic law. No one decision made in this case comes without some kind of negative aspect. References Melvin, S. P. (2011). The legal environment of business: A managerial approach: Theory to practice. New York, NY: McGraw-Hill/Irwin. Repa, B. (2013). Arbitration Basics. Retrieved from http://www. nolo. com/legal-encyclopedia/arbitration-basics-29947. html University of Phoenix. (n. d. ). Contemporary Business Law I [Multimedia]. Retrieved from University of Phoenix, LAW 421 website.
