political, economic, and legal systems that firms focusing global market will face

political, economic, and legal systems that firms focusing global market will face

Introduction

Kuwait is a small emirate that is situated between Saudi Arabia and Iraq and is located in an area that is dry and has one of the most non-hospitable deserts globally. The country was a British protectorate for many years. In 1990, Kuwait experienced world attention when it was invaded by Iraqi forces who wanted to control it. The US, in collaboration within the United Nations, drove the invaders out of Kuwait, even though Iraq’s army retreated by looting the country and setting its oil wells of fire.  After the Persian Gulf War, Kuwait has significantly recovered from the impacts of the war. The country’s per capita income is one of the highest in the world. The popular culture of Kuwait is expressed in the form of radio, television soap opera, theatre, and music. As compared to other Persian Gulf Arab communities, Kuwait society is more open with its citizens more diverse, consisting of Persians and Arabs. The country is classified into six governorates, including Jahra, Al Asimah, Farwaniya, Hawalli, Ahmadi, and Mubarak Al-Kabeer.

The business opportunities that exist in Kuwait cab be utilized by companies who want global. Almarai Co is a Saudi Arabia based company that deals with dairy products and seeks international expansion.  The section below discusses the political, economic, and legal systems that firms focusing global market will face.  Later, the paper will discuss how Kuwait’s political, economic, and legal systems will impact the Almarai in the country.

Political, Economic and Legal Systems

Political System

A political system refers to the system of a government that is adopted by a country. The two dimensions that are used to assess the political system of a country are the degree of collectivism versus individualism, and the degree of democracy versus totalitarianism. The dimensions are related in the sense that systems that deal with collectivism also emphasize on totalitarianism, while those that value individualism tends to be democratic.  Nonetheless, there is a notable distinction between the dimensions. It is possible for a society to be democratic by emphasizing a mix of individualism and collectivism. Likewise, it is possible for societies to be totalitarian and not collectivist.

Collectiveness entails a political system that emphasizes on the significance of collective goals over individual goals. This implies that the needs of the entire society are basically viewed to be more important than the freedoms of individuals. Is such a scenario, the rights of an individual to do something can be restricted on the basis that it offsets the common good or the good of the entire society. While earlier collectivism is traced to Plato (427-347BC), today, collectivism is equated with Karl Marx (1818-1883).

As one form of a political system, democracy refers to a type of government that is owned by people through elected representatives or directly. Nonetheless, most of the modern democratic countries use representative democracy that includes the election of representatives. The elected representatives form the government, while the latter make decisions on behalf of the voters. Totalitarianism refers to a form of government whereby an individual or a political party has absolute control over all kinds of human life besides prohibiting opposing political parties. Under this kind of government, citizens are denied all constitutional guarantees as provided by the representative democracies. The four types of totalitarianism are communist totalitarianism, theoretical totalitarianism, tribal totalitarianism, and right-wing totalitarianism.

Economic System

The economic system can be classified as a market system, command system, and a mixed system.  Market economy refers to an economy whereby entire productive activities are owned by individuals, as opposed to the state’s ownership. The production system is determined by the relationship between demand and supply, with a price system being used to signal the producers. For this market to operate effectively, there should be no restrictions on supply. Such restriction can occur when a single firm monopolizes a market.  In such a case, instead of output increasing due to an increase in demand, a monopolist embarks on restricting the output, thus making the price to increase.

On the other hand, a command economy is an economy whereby services and goods that are produced by a country, the prices offered in the market, and the quantity produced are all under the control of the government. Just as in collectivist ideology, the goal of a command economy is for the government to ensure the good of the society is attained through optimal allocation of resources. Additionally, under a pure command economy, the state owns all businesses.  Another difference between free-market economy and command economy is the reason for incentives. Under the free market economy, the profit as an incentive for managers and owners, while in a command economy, the government provides certain level of incentive to improve profitability and efficiency.

Equality is also a major difference between these two economies. Equality in a free market is likely to cause wealth and income inequality, while in a command economy, the government may ensure a more equitable distribution of natural resources. A mixed economy refers to an economy whereby some sectors of an economy are left under the management of private ownership besides the mechanisms of a free market while other areas are under government planning and state ownership. Mixed economies were common in many parts of the world such as France, Sweden, and Great Britain, but through privatization, state ownership has been reduced in many countries

Legal System

Legal systems refer to the systems of laws or regulations that control the processes which call for the establishment of laws and through which grievances can be redressed. The legal system of a state is important, especially for businesses that operate internationally. The laws adopted in a country regulate the practices of an organization in addition to defining the way in which transactions will be performed.

The three major forms of legal systems are common law, civil law, and theocratic law. Common law, the originated in England, is based on custom, tradition, and precedent. During their interpretation of common law, these three features are considered.  This makes a common law to be more flexible as compared to other legal systems. On the other hand, civil law entails a more detailed set of laws established in the form of codes. The codes are used by courts during the interpretation of civil law. One of the key differences between a civil law system and a common law system is that the former is less adversarial than the latter. This is because, under civil law, the judge uses codes instead of custom, tradition, and precedent. Theoretical law uses religious teachings. Notably, Islamic law is commonly used in the modern world, while the Jewish and Hindu laws were mostly used in the twentieth century.

Countries can also be involved in a contract dispute. This has made the UN establish a Convention on Contracts for the International Sale of Goods. These include a uniform set of regulations that govern particular aspects of commercial contracts between sellers and buyers. This law has been ratified by the US and more than 70 other countries. Nonetheless, many established trading countries such as the UK and Japan have not agreed with its provisions.

Enforcement of Contracts under Different Legal System

A contract refers to a document that indicates the conditions that regulate an exchange, as well as details of obligations and rights of the parties involved. The enforcement of a contract is governed by contract law. Contract law is applied when one of the parties feels that his or her rights have been violated by the other party. As a result of ill specifications of common law, contracts made this law are much more detailed, and most of the contingencies are removed out.  Under civil law, contracts are much shorter and less specific since most of the issues covered in common law are already included in civil law codes.

Political, Economic and Legal Systems of Kuwait

During its expansion in Kuwait, Almarai Co, a well-established dairy company in Saudi Arabia, will need to consider the political, economic, and legal systems of the country to ensure it acts as per the requirements of the country. For example, since the company produces dairy products, it will consider the food regulations established in Kuwait to avoid any legal action against it by the local government. The section below discusses the political, economic, and legal systems of Kuwait that will impact on the operations of Almarai in the country.

Political Systems

The head of the government of Kuwait is the Prime Minister. Since November 2019, Sabah Al-Hamad Al- Sabah has been the Prime Minister. Under his leadership, Kuwait has made notable political steps that can positively impact companies that want to invest in the country. One of the aspects that can be used to evaluate the democratic situation in a country is the rule of law. The index for the rule of law indicates the degree to which agents have confidence and are ready to follow the law of the country, including contract enforcement, court regulations, and property rights. In 2018, the value of measuring the rule of law was 0.21, an improvement from 0 in 2015 (Kuwait: Rule of Law). This indicates that recently, many people in the country are following the laws established by the government of Kuwait.  However, the country’s degree of government effectiveness is yet to improve. The index of government effectiveness measures the perception of people towards public services, independence of political movements, and quality of services. According to the World Bank, the Kuwait index of government effectiveness in 2018 was -0.09 (Kuwait: Government effectiveness).

Economic Systems

Kuwait adopts a mixed economic system. This involves a significant degree of private freedom as well as centralized planning of the economy and government regulations. As a member of the Gulf Cooperation Council and the League of Arab States, the country’s economy is regulated by external forces that also determine the tariffs that companies pay. According to the 2019 Index of Economic Freedom, Kuwait’s score was 60.8, making the points to decrease by 1.4 (2019 Index of Economic Freedom). This was due to low monetary freedom and government spending. In addition, a low score for judicial effectiveness negatively impacted on low economic performance.  Even though the government of Kuwait regularly pledges to make reforms that will ensure low dependence on hydrocarbons, The country’s failure to diversify the local economy or expand private sector have resulted to factors that may impact Almarai operation in the country such as poor business environment, inefficient public sector, and deficiencies of institutions.

Legal Systems

The legal system, followed by Kuwait, is a civil law system having been modeled from the legal system of France. The non-Muslims in the country adopt a secular family law while Muslim residents are governed by the Sharia law (Ahmed, 2019). However, Kuwait lacks Sharia courts, contrary to other Gulf nations.  This implies that while Almarai undertakes its activities, it will need to consider the legal system that is followed by its customers that if they are Muslims or non-Muslims. As noted earlier, under civil law, contracts are less specific and shorter. This is one of the issues that will impact on the company as it expands its operation in Kuwait.

The constitution adopted in the country was created by an assembly consisting of 20 members. The ministers who joined the constituent assembly were from outside the assembly. The constitution of the country combines the positive issues of parliamentary and presidential forms of government. Additionally, the constitution is based on principles of freedom of citizens, democracy, the sovereignty of the country, and the equality of Kuwait people in the eyes of the law (Congressional Research Service). Currently, all organizations operating within Kuwait are required to follow the laws provided by the constitution. The five parts that make up the constitution include powers, system of the government, transitional and general provisions, and public duties and rights.

References

2019 Index of Economic Freedom. Available from https://www.heritage.org/index/country/kuwait

Ahmed, K. (2019). Kuwait’s Legal System and Legal Research. Available from https://www.nyulawglobal.org/globalex/Kuwait.html#thekuwaitlegalsystem

Congressional Research Service. Kuwait: Governance, Security, and U.S. Policy. https://fas.org/sgp/crs/mideast/RS21513.pdf

Kuwait: Government effectiveness. Available from https://www.theglobaleconomy.com/Kuwait/wb_government_effectiveness/

Kuwait: Rule of Law. Available from https://www.theglobaleconomy.com/Kuwait/wb_ruleoflaw/