Explain why contract laws can represent a country risk arising from the host-country legal environment, and explain the three approaches firms typically employ to settle international contractual disputes

What will be an ideal response?

Governments in host countries can impose a variety of legal stipulations on foreign companies doing business there, and contract laws represent one form of country risk. International contracts attach rights, duties, and obligations to the contracting parties. Contracts are used in five main types of business transactions: 1. sale of goods or services, especially large sales, 2. distribution of the firm's products through foreign distributors, 3. licensing and franchising-that is, a contractual relationship that allows a firm to use another company's intellectual property, marketing tools, or other assets for a fee, 4. FDI, especially in collaboration with a foreign entity, in order to create and operate a foreign subsidiary, and 5. joint ventures and other types of cross-border collaborations.
Convergence toward an international standard for international sales contracts is occurring. The United Nations instituted the Convention on Contracts for the International Sale of Goods (CISG), a uniform text of law for international sales contracts. More than 75 countries are now party to the CISG, covering about three-quarters of all world trade. Unless excluded by the express terms of a contract, the CISG is deemed to supersede any otherwise applicable domestic law(s) regarding an international sales transaction.
A legal contract spells out the rights and obligations of each party and is especially important when relationships go awry. Contract law varies widely from country to country, and firms must adhere to local standards. For example, a Canadian firm doing business in Belgium generally must comply with the laws of both Belgium and Canada, as well as with the evolving laws of the European Union.
International contractual disputes arise from time to time, and firms generally employ any of three approaches for resolving them: conciliation, arbitration, and litigation. Conciliation is the least adversarial method. It is a formal process of negotiation with the objective to resolve differences in a friendly manner. The parties in a dispute employ a conciliator, who meets separately with each in an attempt to resolve their differences. Parties can also employ mediation committees-groups of informed citizens-to resolve civil disputes. Arbitration is a process in which a neutral third party hears both sides of a case and decides in favor of one party or the other, based on an objective assessment of the facts. Compared to litigation, arbitration saves time and expense, while maintaining the confidentiality of proceedings. Arbitration is often handled by supranational organizations, such as the International Chamber of Commerce in Paris or the Stockholm Chamber of Commerce. Litigation is the most adversarial approach and occurs when one party files a lawsuit against another in order to achieve desired ends. Litigation is most common in the United States; most other countries favor arbitration or conciliation.