Describe the similarities and differences of common law and civil law, and explain how inadequate or underdeveloped legal systems pose a risk for international businesses

What will be an ideal response?

Also known as case law, common law is a legal system that originated in England and spread to Australia, Canada, the United States, and former members of the British Commonwealth. The basis of common law is tradition, previous cases, and legal precedents set by the nation's courts through interpretation of statutes, legislation, and past rulings. The national legislature in common-law countries (such as Parliament in Britain and Congress in the United States) holds ultimate power to pass or amend laws. In the United States, because the constitution is difficult to amend, the Supreme Court and even lower courts have much flexibility to interpret the law. Because common law is more open to interpretation by courts, it is more flexible than other legal systems. Thus, judges in a common-law system have substantial power to interpret laws based on the unique circumstances of individual cases, including commercial disputes and other business situations.
Also known as code law, civil law is found in France, Germany, Italy, Japan, Turkey, and Latin America. Its origins go back to Roman law and the Napoleonic Code. Civil law is based on an all-inclusive system of laws that have been "codified"; the laws are clearly written and accessible. It is divided into three separate codes: commercial, civil, and criminal. Civil law is considered complete as a result of catch-all provisions found within the law. Rules and principles form the starting point for legal reasoning and administering justice. The codified rules emerge as specific laws and codes of conduct produced by a legislative body or some other supreme authority.
Both common law and civil law systems originated in western Europe and represent the common values of western Europeans. A key difference between the two systems is that common law is primarily judicial in origin and based on court decisions, whereas civil law is primarily legislative in origin and based on laws passed by national and local legislatures. Common law and civil law pose various differences for international business.
Inadequate or underdeveloped legal systems pose a risk for international business. Just as laws and regulations can lead to country risk, an underdeveloped regulatory environment or poor enforcement of existing laws can pose challenges for the firm. Safeguards for intellectual property are often inadequate. Regulations to protect intellectual property may exist on paper but not be adequately enforced. When an innovator invents a new product, develops new computer software, or produces some other type of intellectual property, another party can copy and sell the innovation without acknowledging or paying the inventor. As reported in the opening vignette, Russia's legal framework is relatively weak and inconsistent. Russian courts lack substantial experience ruling on commercial and international affairs. Due to the unpredictable and potentially harmful legal environment, Western firms frequently abandon joint ventures and other business initiatives in Russia.

Inadequate legal protection is most common in developing economies, but it can be a factor in developed economies as well. The most recent global financial crisis was precipitated, in part, by insufficient regulation in the financial and banking sectors of the United States, Europe, and other areas. Government authorities have been considering how regulatory structures can be revamped to provide a sounder footing for connecting global savers and investors, as well as a reliable method for dealing with financial instability. Regulators seek to expand the reach of regulation, provide new means to increase transparency and information flows, and find ways to harmonize regulatory policies and legal frameworks across national borders. Banks and other financial institutions are revising disclosure rules to make information more specific and consistent. Some experts suggest the financial crisis is not proof that more regulation is needed. Rather, they argue for more intelligent regulation, better enforcement of existing regulation, and better supervision of national financial institutions.