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Chapter 13 Business in the Global Legal Environment

Learning Objectives

After reading this chapter, you should understand the foundational concepts of business in the global environment. You will learn about why it is important to understand the global legal environment, as well as some of the sources of international law that pertain to business. You will examine the concept of sovereignty and the unique challenges that concept poses, specifically in relation to ethical questions arising in the international business context. You will explore concepts critical to conducting business in the international environment, including trade regulations, international contract formation, and prohibited activities. At the conclusion of this chapter, you should be able to answer the following questions:

  1. Why is the global legal environment important to all businesses?
  2. What is international law?
  3. What laws are relevant to businesses operating internationally?
  4. What are some current ethical issues associated with the global environment of business?
  5. What legal considerations exist with respect to trade regulations, international contract formation, employment and human rights issues, and prohibited activities in the international environment?

Figure 13.1 Global Business

It’s a globalizing world. If you are considering starting a small business, it may not occur to you to consider exporting your product. However, according to the Small Business Association, 96 percent of the world’s potential customers live outside of the United States.U.S. Small Business Administration, “Take Your Business Global,” June 2010, http://www.sba.gov/idc/groups/public/documents/sba_program_office/oit_sba_fast_facts.pdf (accessed September 27, 2010). So what’s stopping you? Maybe you are not sure how to negotiate a contract with a supplier or manufacturer overseas. Or maybe you are uncertain about U.S. laws relating to importing and exporting. The international market is lucrative, though the legal environment for operating in that forum is different from that for a business that operates exclusively within the borders of the United States. For this reason, it is important to be familiar with some of the basic concepts of doing business in the global economy.

You may be acquainted with challenges faced by U.S. businesses and workers when considering the questions associated with this new business environment. When we shop for food, computers, clothing, pet food, automobiles, or just about anything produced for the global market, we might very well purchase a final product from a different country, or a product composed of components or labor from many different parts of the world. Economists tell us that this represents the most efficient method of production and labor. After all, if a business can pay $1 per hour to a worker overseas, why would it choose instead to pay $12 per hour to a U.S. worker?

Of course, it’s not necessarily a sunny picture for people whose jobs have been outsourced. Additionally, businesses operating in the international environment face unique questions. For instance, if the new labor force that is being paid $1 per hour is composed of workers who are forced into sweatshop conditions, then there may be serious consumer backlash against the company that has chosen to do business with that particular manufacturer. Check out Note 13.2 "Hyperlink: National Labor Committee" to view current stories about modern sweatshops that produce goods that you may own.

Hyperlink: National Labor Committee

http://www.nlcnet.org

Click on Alerts or Reports at the top of the page. Do you recognize any products that you own or companies that you enjoy shopping with?

Even if the consumers do not respond negatively to business decisions that result in the use of child labor or sweatshop conditions for the production of goods, the question of ethics still remains. For instance, does a company wish to place profit over concerns that it might have about human rights? And, does a company have any long-lasting duties to its U.S. workforce, or is it all right to simply outsource jobs if it makes economic sense to do so?

Besides human rights issues, other concerns about doing business in the international environment exist. For example, it is not uncommon for polluting industries to locate to countries that have laxer environmental regulations than they would face at home. Environmental degradation, such as the overuse of natural resources, generation of pollution, and improper disposal of waste products, is a common by-product of global businesses.

International business includes not only trade in new goods but also the disposal of old ones. For example, the U.S. Government Accounting Office found, after an undercover investigation, that many U.S. companies were willing to export old electronic products that contain cathode-ray tubes (CRTs), each composed of several pounds of lead, to countries where unsafe recycling practices occur, without following U.S. regulatory law. Unsafe recycling of toxic electronic waste, known as e-wasteElectronic waste, often containing toxic materials that are subject to regulation by the U.S. Environmental Protection Agency., has serious effects on the environment and on human health. Additionally, some of the companies that were willing to do this have publically proclaimed their commitments to environmentally safe practices.U.S. Government Accountability Office, “Electronic Waste: EPA Needs to Better Control Harmful U.S. Exports through Stronger Enforcement and More Comprehensive Regulation,” GAO 08-1044, August 2008, http://www.gao.gov/new.items/d081044.pdf (accessed September 27, 2010). Check out Note 13.4 "Hyperlink: E-waste: From the United States to China" for a video concerning U.S. exporting of toxic waste.

Hyperlink: E-waste: From the United States to China

http://www.cbsnews.com/video/watch/?id=5274959n&tag=related;photovideo

Environmental degradation is much like sweatshop labor in the sense that some companies that engage in harmful practices will pay the price by suffering the fallout from consumer protests. Again, regardless of consumer reaction, the question of whether to engage in such practices is not only a legal question but also a question of ethics.

This chapter explores the nature of international law. Additionally, it reviews considerations that are relevant to businesses operating internationally, such as trade regulations, contract formation between international parties, and prohibited activities. It also examines some current ethical issues associated with the global environment of business.

Exercises

  1. Check out Note 13.2 "Hyperlink: National Labor Committee", the Web site for the National Labor Committee. Click on Alerts or Reports at the top of the page. Do you recognize any products that you own or companies that you do business with? Pick a story concerning a company that you do business with, or that you have considered doing business with. After reading the report, would you consider boycotting that company’s products? Why or why not?
  2. View the video in Note 13.4 "Hyperlink: E-waste: From the United States to China". What types of e-waste do you produce? Where does it go? For example, how did you dispose of your last cell phone? Your last computer? Your last iPod?