Legal Regulations in Business
Introduction
Legal environmental, laws, and regulations often play a crucial role in the determination of success in businesses both locally and globally. For instance, businesses are often imposed with an array of government taxes among other regulatory measures in order to promote the anticipated degree of economic growth while protecting consumers from the possibility of exploitation. However, most organizations often fail to adhere to the requirement of understanding the legal conditions of the country of operation. For instance, Walmart has faced intense resistance and diminished growth in China owing to its failure to understand the legal provisions in the country (Winn, 2018). An organization should delve to understand the legal complexities and requirements of international business to avoid the possibility of failure, penalties, and fines.
Walmart facing Regulation Differences in China
Walmart’s main consideration when entering a foreign market is the need to understand government regulation over its monopolization and its influence on the local market. After its entry into the Chinese market, Walmart was required to assure the government that it would provide the Chinese people with increased employment opportunities, retail alternatives, and establish a healthy competition while providing the residents with high-quality products at low costs (Li & Liu, 2018). Although the organization’s influence is powerful in the United States, it was viewed differently in China in that it faced problems that could not be fixed through quick solutions. The legal restrictions that China faced dealt with the need to cooperate with a communists’ government, local competition that was rigid, and the need to deal with unions in the country.
After opening its operations in the country in 1996, Walmart was faced with procurement and transportation issues owing to government restrictions to set up conventional distribution centers. There was a requirement by the government to have the local officials approve the products that were being moved from one location to another. In order to resolve this restriction, Walmart established buyers in different communities and cities in which it operated to purchase the items that were to be sold locally through state and government-approved vendors. Another legal restriction that Walmart faced was its inability to adhere to wage laws in that it was reported that that the company employed child workers and refused to adhere to employment laws of taking responsibility for worker injuries (Shen & Philipsen, 2016). However, although Walmart stated that it monitors and corrects labor problems aggressively, the factory workers reported that the company pays less than the minimum wage. Additionally, although labor laws state that an employee should not work for more than 40 hours a week, workers in the company stated that they were forced to work overtime without additional payment. Workers were denied maternity leave and sick leave in that they were not provided with any basis of a contract for employment. Lack of contract limited the worker’s ability to sue the company based on violation of labor laws.
In order to adjust to the legal requirement, Walmart adhered to a call by the International Labor Rights Fund to enforce the code of conduct when dealing with suppliers. It was also required to allow for independent monitories in all its factories and adhere to the requirement to engage government agencies and the local management to ensure compliance of the factory with Chinese labor laws (Katsikeas, Leonidou, & Zeriti, 2019). In addition, the company has been required to source its products from worker-owned cooperatives and unionized workers in the country. Walmart has also been making attempts to pay a fair wage to its employees and fair price for the products that are sourced in the world.
Laws in China and its Differences with the United States
China has a civil law system that consists of an array of regulations, statutes, and administrative rules. The Supreme Court is mandated with the power to issue judicial interpretations that the lower courts must adhere to when adjudicating cases. However, its federal system is different from the one adopted in the United States in that the low courts do not have to adhere to the rulings by the high courts although this is often done in practice. While China is guided by a civil law system, the United States has a common law system like most countries in the English-Speaking nation. Unlike in the United States, China lacks an independent judicial system in that its judicial system often works as an extension of the Communist Party’s political power and the government’s executive power.
In Chinese business, the law prohibits organizations from terminating their employees for no reason, a practice that is common in the United States where employers can hire and terminate employees at will. In China, one can only be terminated without severance pay or notice in the event that they have violated the company rules severely or engaged in practices that may affect the company’s growth such as engagement in a conflict of interest or being part of criminal investigations (Chatterjee, 2016). While Walmart can fire its employees in the United States, that practice can carry additional stipulations in China. Additionally, while it is easy to initiate an IPO in the United States, Chinese companies require the majority of shareholders to be part of the organization for a period of three before the official initiation of an IPO.
Marketing Laws
Organizations must be aware of marketing laws in different countries before expanding their business into other regions. For instance, an organization should understand that Thailand has restrictions for foreign companies in that they are not allowed to own a proportion of the business that is more than 49% (Cateora, Meyer, Gilly, & Graham, 2020). As such, one must have the willingness to take over a partnership from Thai in order to undertake a business there. In the same manner, an organization must understand permits and licenses in a particular country. For instance, a foreign country that is operating in the Netherlands must provide another company with a permit to manufacture the products it needs in production. This was the requirement for Pepsi to operate in the Netherlands, a reason why Pepsi issued a license to Heineken to bottle and sell its Pepsi products in the country. Tariffs are another significant imposition that an organization should consider. For instance, selling chicken in China from the United States is likely to attract a tariff of 105.4% to encourage domestic production. As such, an organization needs to understand trading limitations, laws, and regulations that may hinder the efficient operation of business activities in foreign countries.
Conclusion
An organization should delve to understand the legal complexities and requirements of international business to avoid the possibility of failure, penalties, and fines. Walmart’s failure to recognize legal requirements in China has reduced its growth and success in the region owing to its inability to adhere to trade and labor laws. As such, an organization should be familiar with the country’s laws and regulations when conducting business in other countries.
References
Cateora, P. R., Meyer, R. B. M. F., Gilly, M. C., & Graham, J. L. (2020). International marketing. McGraw-Hill Education.
Chatterjee, S. R. (2016). Impact of Labor Contract Law 2008 on Human Resource Practices in China: Balancing Social Harmony and Market Efficiency. Amity Global HRM Review, 6.
Katsikeas, C., Leonidou, L., & Zeriti, A. (2019). Revisiting international marketing strategy in a digital era. International Marketing Review. https://doi.org/10.1108/IMR-02-2019-0080
Li, C., & Liu, M. (2018). Overcoming collective action problems facing Chinese workers: Lessons from four protests against Walmart. ILR Review, 71(5), 1078-1105. https://doi.org/10.1177/0019793918784516
Shen, G., & Philipsen, N. (2016). Regulation of the inter-provincial establishment of companies: applying the private interest approach to China. In Market Integration: The EU Experience and Implications for Regulatory Reform in China (pp. 183-210). Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-48273-5_8
Winn, A. (2018). Chinese Workers vs. Walmart: Brainstorming Solutions to Funding Strategic Labor Litigation in the Wake of China’s 2017 Foreign NGO Law. NYUL Rev., 93, 1854.