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Legal Risks and Considerations in International Business

The competitive risks associated with carrying on business in a foreign market are numerous. For example, understanding the foreign market, communicating in a foreign language, and understanding the competitive environment can be extremely difficult. Important for this chapter, the legal risks associated with carrying on international business can be extensive. The following are examples of legal risks businesses commonly encounter:

•    Governing Laws – What laws control business agreements? Contracts often employ some amalgam of contract laws from each country. Does the foreign country recognize and protect intellectual property rights? What are the legal hurdles in the importation process? What tariffs, duties, customs processes, etc., apply to the importation of goods? What labor laws apply to operations?

•    Enforcing Legal Rights – How does one enforce legal agreements or one’s property rights? Foreign court systems have varying methods of enforcing one’s rights. The legal system may be difficult to navigate or unavailable to foreigners. Is there a risk of expropriation or nationalization of business assets?

•    Political Stability – Is there a risk of political overturn, war, etc., that could disrupt business operations. This includes the potential for expropriation or nationalization of the company’s resources.

This list is by no means exhaustive. Operating in a foreign market may give rise to any sort of specific legal barrier or hurdle for foreign entities.

•    Discussion: Can you think of other legal risks that may present themselves when doing business in a foreign country? How do these risks compare to other risks, such as the foreign competitive environment?

•    Practice Question: ABC Corp is considering expanding its US-based operations into China. Can you identify some of the legal risks that ABC Corp will face in its expansion?

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