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Summary - International Business Law
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- Vrije Universiteit Brussel (VUB)
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SAMENVATTINGINTERNATIONAL BUSINESS LAW
CHAPTER 1: WHAT IS THE LAW?
LEGAL DEFINITION: THE LAW
The law can be described as a system that brings stability and predictability to society. On a personal level, it helps citizens
distinguish between right and wrong. For businesses, it provides a degree of legal certainty in business decisions and
transactions. Legal questions can have a huge impact on business success, such as:
- Can I trust my business partner?
- What happens if there is a breach of contract?
- Can I claim damages?
However, the legal framework varies greatly depending on location and time period. An important principle is that the law is
constantly evolving, as evidenced by historical examples such as:
- The Babylonian Code of Hammurabi
- The Greek concepts of democracy
- The Roman Code of Law of 533 AD
- The Napoleonic Code of 1804
- Modern legal systems.
Law reflects values and beliefs of society, highlighting the close relationship between morality and enforceable rules.
THE LAW’S EVOLVING NATURE
Law is constantly changing, influenced by historical, social and cultural developments:
1. Historical progression: from nomadic tribes to codifications such as Roman law and modern jurisprudence.
2. Values and trends: law reflects the prevailing beliefs of a society, but can sometimes "lag behind" social trends.
For international companies, it is crucial to understand the legal environment:
- How stable and predictable is the legal environment in the country where business is conducted?
- How do social attitudes influence the interpretation and application of laws?
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, YOUR ROLE WITHIN BUSINESS
For business decisions at the international level, it is essential to analyse the legal environment:
1. Business predictability: companies need to understand how laws affect business transactions.
2. Practical questions: companies need to analyse local laws for investment decisions (e.g. labour laws, environmental
laws).
3. Critical areas: contractual agreements, dispute resolution, and compliance with local regulations are examples of legal
factors that drive business choices.
COMPARATIVE LEGAL SYSTEMS
Perceptions of the role of the law in society vary by country and legal tradition. Two main systems are:
1. Private international law (conflict of laws): this determines which law applies in conflicts with an international
element
2. International law: regulates relationships between countries and between individuals/entities from different
countries, based on treaties, international customs and general principles of law
Understanding differences in legal systems is essential in international contracts, for example by:
- Choice of applicable law (choice of law clause)
- Choice of forum (forum selection clause)
- Use of arbitration clauses
- Obtain a general knowledge of the legal system of your counterparty
COMMON LAW VS CIVIL LAW
There are two main types of legal systems:
1. Civil Law (continental tradition):
o The oldest system, based on codification (like Roman law).
o All legal rules are laid down in comprehensive codes (e.g. family law, criminal law, commercial law).
o Applied in countries such as France, Germany, Japan and South Korea.
2. Common law (Anglo-Saxon tradition):
o Based on case-by-case basis and court decisions (precedent).
o The principle of stare decisis obliges lower courts to follow previous rulings of higher courts.
o Applied in countries such as the US, UK, India and Australia.
The choice between common law and civil law affects the approach to dispute resolution and legal predictability for
businesses.
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, CHAPTER 2: DOING BUSINESS INTERNATIONALLY
WHY: REASONS
Companies choose to do business internationally because of a combination of strategic advantages:
1. Increasing sales: access to new markets increases customer base and sales.
2. Cost reduction: local raw materials, labour or production conditions may be cheaper, leading to economies of scale.
3. Risk reduction: diversification across markets helps reduce economic and operational uncertainties.
4. Innovation: differences in consumer preferences worldwide encourage adaptation and new product development
(e.g. McDonald's unique menus in different countries).
5. Globalisation trends: growth in international trade is fuelled by supranational trade agreements, trade liberalisation,
and lower import duties thanks to the WTO.
Managers need to answer some fundamental questions beforehand:
- Is expansion internationally the right strategy for the company?
- Which method is most appropriate for expansion?
- Which markets are stable and lucrative?
Principle reasons for growth in international business transactions:
- Development of supranational trade law
- Liberalization of trade and investment rules
- WTO: lower tariffs and non-tariff barriers to trade
HOW: 3 MAIN METHODS
International business can be handled in three main ways, each with specific advantages and disadvantages:
1. Export/Import:
o Direct: goods and services are sold directly to foreign markets.
▪ Advantages: relatively low risks and costs.
▪ Disadvantages: not allowed in all countries without local partners (e.g. China).
o Indirect: use of intermediaries or agents to overcome cultural and linguistic barriers.
▪ Advantages: flexible and less capital investment.
▪ Disadvantages: less control over marketing and execution.
2. Licences and intellectual property:
o Transfer of production rights to foreign licensees in exchange for royalties.
o 3 traditional pillars of IP: trademark, patents and copyright (+ trade secrets: protection of confidential
information)
▪ Advantages: lower costs and less direct involvement.
▪ Disadvantages: potential for misuse of intellectual property and limited control over quality.
3. Foreign Direct Investment (FDI):
o Direct investment in a foreign market with full ownership and control.
▪ Advantages: full profit control and market adjustment.
▪ Disadvantages: high cost, high risk and limited flexibility.
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