Introduction
Expanding internationally requires a firm to consider many elements associated with an international market. Most importantly, the legal environment of the target market can dictate whether an expansion effort will succeed or fail. For instance, employment laws and how they are enforced affect a company’s labor practices, including minimum wage, pensions, and the right to join Unions. The legal systems must also be considered, especially regarding how laws are interpreted. Data protection, especially in the modern era of digitization, is also a critical component of the legal challenges when expanding. Such legal factors can either facilitate or hinder an expansion. Therefore, a decision is made based on how a business can cope with the target market’s legal and governing systems.
This paper focuses on ELECTRIFI and its desire to enter a new market, Tipsia. The company faces some legal issues with the market, including guidance from the country’s Market Authority that requires companies to ensure that at least 80% of employees are Tipsia’s nationals. A new Market Authority that may override the current guidance is expected in two months. Other consideration aspects include new powers given to the Supreme Court to use international law and an old 1922 legislation requiring firms to share information with the public. The paper will discuss these legal issues associated with Tipsia’s legal governance and encompass such issues as soft law, conceptual problems, monism/dualism, methods of legal interpretation, and aspects of international law and its effects on applying Tipsia’s domestic laws.
Tipsia’s Legal Issues
The first major legal issue with Tipsia is the requirement that a foreign company entering the country must have at least 80% of their employees being Tipsia’s nationals. The main concern is that ELECTRIFI can only achieve the objective over the medium term. The company questions whether such an observation will affect the expansion decision. In other words, the company must decide whether to expand now or later depending on when it can meet the labor requirements.
The challenges involved in this decision are legal, economic, and social. Legally, failing to abide by domestic labor laws will attract legal consequences in most countries. For example, firms that violate employment laws face lawsuits from employees and fiscal penalties imposed by the local governments. Several case studies can illustrate this point, including Hyundai and KIA Motors and their employment practices in the United States involving 14- and 15-year-olds. Therefore, ELECTRIFI must consider the legal consequences of failing to meet the employment requirements in the short term.
Another reason to worry about Tipsia’s labor laws is that many countries currently demand that their multinationals engage in better labor practices. This includes taking responsibility for working conditions in their overseas subsidiaries. The same applies to multinationals’ foreign suppliers in their foreign markets. Therefore, ELECETRIFI may also need to consider how the home government affects its labor practices abroad. However, domestic laws in foreign markets should be prioritized, even when the markets are developing countries. The motivation for such a consideration is that governments have enacted employment laws for employment, occupational safety and health, and social security.
In many cases, such laws are often de jure universal, except in a few cases where the rules are country-specific. For example, Tipsia’s 80% local, national labor requirement is specific to Tipsia, but mainly regarding the percentage. Each country has specific requirements regarding the percentage of a foreign company’s workforce that should constitute expats.
From a cultural and socioeconomic perspective, expanding into Tipsia will face such challenges as labor costs, availability of trained/skilled labor, and cultural differences/barriers. Currency exchange rates often affect labor costs, making it difficult to determine the right wages for domestic workers. However, such a challenge can be overcome by using local currencies. The costs may also emanate from the need to train domestic workers to meet international standards. Cultural barriers, including language differences, make it challenging to manage foreign workers. The problem is magnified by regulations requiring foreign firms to hire particularly large numbers of domestic workers, as illustrated by the case of Tipsia. However, these challenges are subject to the extent to which countries apply international laws and guidelines and the methods used to interpret international conventions.
International Law
Further legal challenges facing ELECTIFI and its ambitions to expand into Tipsia revolve around the extent to which the company complies with international labor laws. Additionally, interpreting the international guidelines by Tipsia’s Supreme Court plays a critical role in the company’s compliance initiatives. Current literature establishes that various factors affect the extent to which foreign companies comply with the domestic laws of the international target market and the international labor laws. For example, the foreignness effect of companies in developing countries negatively affects compliance. Similarly, the strength of the labor unions in the target market pushes forms to comply with laws. International labor laws create a unique political dimension within the global economic governance framework in which international firms seek to influence trade policies.
However, MNCs’ efforts are not always successful, especially where governments and political systems are stronger. Their efforts usually go against the backlash of rising protectionism and coordination of international firm operations as regulators strive to make companies responsible for human rights across their entire value chains. The idea of ‘private regulation’ emanated from multinational companies’ (MNCs’) efforts to regulate labor and other trade laws for their international subsidiaries. Therefore, MNCs can always benefit from foreign regimes that embrace international standards.
Soft Law
ELECTRIFI’s entry into Tipsia under the current conditions will also greatly influence whether the 1922 legislation is soft law. The definition of soft law is highly debatable as some observers label it illogical and redundant. However, most scholars agree that soft law entails a convenient, non-abiding regulatory instrument for international relations used by states and MNCs.
Soft laws often disrupt the traditional state definition and can undermine a state’s sovereignty, especially if the soft laws override a government’s legal systems. A recent example of governments and MNCs using soft law was during the COVID-19 pandemic when governments sought to reopen international supply chains for critical products, including agriculture. Such laws often offer a temporary solution or seek to plug the gap between domestic laws and international laws.
Tipsia’s 1922 regulation by the Market authority can be deemed soft law because it is not enforced. However, even soft law can transform into hard law if its principles are widely accepted. Some firms prefer soft laws, while others advocate for legally abiding regulations depending on a company’s interests. In this case, it is unclear if ELECTRIFI prefers soft law to the alternative.
The 1992 Market Authority regulation may fail to transform into hard law because it forces businesses to share information with Tipsia’s public. ELECTRIFI cannot meet this requirement since it undermines data protection laws. Therefore, growing business resistance may change Tipsia’s stance, and firms may consider waiting for its replacement.
Conceptual Problems
Conceptual issues emanate from the Supreme Court’s choice of law if an MNC is sued for violating specific regulations. This is especially so with the Market Authority’s 1922 regulation and the application of international laws. The powers to use international conventions have not been elaborated, meaning it is the Supreme Court’s discretion to decide which regulations to apply. Similarly, the Supreme Court can decide the extent to which it applies the 1922 guideline or its replacement, which is due in two months.
However, these contextual issues fail to acknowledge the doctrine of party autonomy, which holds that parties to an international contract can choose the applicable law to govern their dispute. This doctrine would give ELECTRIFI the freedom to choose which international laws to use in a dispute involving itself and other parties in Tipsia. However, this doctrine assumes that contractual arrangements based on particular laws facilitate a company’s entry into a foreign market. Such an assumption may not apply to Tipsia, whose domestic laws override international guidelines.
Methods of Interpretation: Literal Versus Contextual
The legislation has granted the Supreme Court of Tipsia the power to decide and direct courts below it to interpret domestic laws based on contextual or literal methods. With the decision expected in the coming days, an assessment of these methods and their advantages and disadvantages reveals which would be more favorable to ELECTRIFI. The literal method entails literary interpretation of the law using the plain meaning or the grammatical rules. Literal interpretation is also used to mean the letter of the law, meaning that words used in the law are interpreted for their meaning. The courts look at the words and apply them as written in their natural and ordinary meaning.
The main advantage of the literal method is that it is easier for lawyers and judges to apply and understand the law. In this case, it becomes impossible to subvert the law. The disadvantage is that the literal method is rigid and fails to consider the bigger picture of the case involved. The advantages and disadvantages of the literal method can be observed in several cases. Examples include Annold v Britton and Wood v Capital Insurance Services Ltd.
The contextual method of law interpretation differs significantly from the literal method in that it treats legal subjects broadly to help explain the operation in practice of the legal field of phenomena under investigation. The UK Supreme Court has used this method in several cases, including Rainy Sky SA v Kookmin Bank. Contextual interpretation requires that legal texts hold when the full light of their moral and social context is considered. The contextual method requires judges to apply presumptively contextual or ordinary meaning when construing legal materials. This method’s main benefit is that the bigger picture is considered when deciding cases. Judges can make morally justified rulings by allowing moral and social context to prevail. A key disadvantage is that the law may be subverted and fail to serve its purpose.
Monism Versus Dualism
ELECTRIFI has to consider the relationship between international and domestic law in the context of Tipsia. The two theories that define this relationship are monism and dualism. Monism holds that internal and international laws form a unity as both complement each other. In other words, international law does not have to be translated into domestic law. On the contrary, dualism perceives domestic and international laws as different legal systems, meaning that international law has to be translated into domestic law (Chitwar, 2020). Tipsia can be described as a monist country since the legislation has granted the Supreme Court powers to decide cases in accordance with international treaties and customs. In this case, ELECTRIFI can be assured that international laws will be used in case of legal disputes.
Conclusion
ELECTRIFI faces a situation where venturing into a new market presents several legal challenges. However, the situation can be judged based on convenience for the company in the market and whether the problem is prohibitive. Consequently, it is suggested that the company should delay the expansion because the legal framework may change in a few months. Waiting for the changes allows the company to make informed decisions regarding whether the laws are acceptable. On the contrary, continuing with the expansion means the company has to challenge many legal uncertainties that may undermine its success in Tipsia. The initial standard does not allow the firm to expand. International trade laws will only apply to the extent Tipsia’s Supreme Court allows.
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