Business internationalization turns out to be the key to the growth of many companies, as well as a great engine for the national economy. This reality encompasses both large companies and small businesses.
In many cases, reality forces companies to expand as a natural consequence of a restriction in local demand on the one hand, and on the other, simply because consumers have already become accustomed to expanding their consumption horizons and it is tempting to be able to reach customers not taken into account before.
International Lawyer
But this process of converting companies towards the internationalization of their operations requires a deep knowledge of the legal risks implicit in any international commercial transaction. The participation of an international business lawyer is indispensable from before the very beginning of operations.
In principle, for the performance of an international business operation, a contract is required, where the terms of the operation will be established. This instrument of international trade fulfills a key function: it allows the setting of rights and obligations that correspond to each of the intervening parties.
The contract will serve as an instrument for forecasting and covering risks, avoiding future complications that could jeopardize the proper execution of the commercial relationship.
This contract stipulates in detail the characteristics of the stages that every international contract requires: contract preparation, negotiating the contract, and contract execution.
Elements of an international contract
- Personal elements: refers to the parties or individuals or legal entities involved in the contractual relationship.
- Formal elements: there is no mandatory format for international contracts. According to the Vienna Convention on the International Sale of Goods of April 11, 1980, it states that the contracts are not subject to any form requirement, not even the written one, and that they may be proven by any means, including witnesses.
- Real elements: the goods or services to be exchanged in the commercial operation. The objects of the contract are goods and services that are included in the trade and that are possible, lawful and determined.
To write an international contract, it is not possible to copy a model, since each case has a negotiation in between where offers are made and clauses are established that must be reflected in the terms of the contract, and these make it unique. For example:
- What law will govern that contract
- How prices will be updated
- How delivery delays will be managed
- How any commercial dispute will be resolved, including which agencies will be involved. (It is essential to provide for jurisdiction)
We have already mentioned in a previous article that it is not mandatory to have a written contract. They can also be verbal. However, common sense indicates that this practice is not recommended.
Ideally, the agreement should be written, and, before creating a possible new contract, the parties may take or repeal elements of the previous contract.
Negotiating contracts in multicultural environments
Each culture has its own particular way of doing business. Some aspects to consider include:
- Communication style: While countries like Germany or the United States value direct and concise communication, in countries such as Japan or Mexico, a more diplomatic and indirect communication style is common.
- Relationships and trust: In some cultures, such as Chinese or Arab, personal relationships play a crucial role in negotiations, so it’s important to spend time building trust before closing a deal.
- Decision making: In Western countries, decision-making is typically quick and data-driven, whereas in other countries, such as those in Latin America or Asia, it may require more prolonged internal consultations.
To negotiate effectively in multicultural environments, it is advisable to:
- Research the business partner’s culture to avoid misunderstandings and show respect.
- Adapt the communication style to that of the counterpart, ensuring that the message is clear and well-received.
- Be patient and flexible during negotiations, understanding that response times may vary by country.
- Seek international legal advice to ensure the contract terms are clear and enforceable in both jurisdictions.
Common mistakes in drafting international contracts
A poorly drafted international contract can lead to legal, business, and financial issues. Avoiding mistakes during its preparation is essential to protect the parties’ interests and ensure compliance with the agreements.
Failure to define applicable law and jurisdiction
One of the most serious mistakes is failing to specify which law will govern the contract and in which country disputes will be resolved. If this is not defined, any dispute could become complicated and prolonged in courts across different countries.
Use of ambiguous or contradictory terms
Differences in language and legal interpretation can lead to confusing or contradictory clauses. It is advisable to:
- Use clear and precise language.
- Include definitions for key terms.
- Obtain certified translations when necessary.
Lack of dispute resolution clauses
Failing to include dispute resolution mechanisms (such as arbitration or mediation) can lead to long litigations in courts. It is recommended to include clauses that establish procedures to resolve conflicts efficiently.
Failure to specify payment and delivery conditions
Contracts should clearly detail:
- Payment currency and conditions for exchange rate fluctuations.
- Delivery timelines and penalties for delays.
- Return or refund conditions in case of non-compliance.
Ignoring local regulations and international treaties
Each country has different regulations regarding commerce, taxes, and consumer protection. Failing to consider these regulations may render a contract unenforceable or expose one party to penalties.
Not seeking advice from a specialized lawyer
One of the most common mistakes is copying contract templates without adapting them to the specific operation. Each business is unique, and it is essential that a lawyer specializing in international law reviews and drafts the contract to ensure its validity and applicability.
International Law Firm
In our international law firm, we provide advice in international law, in order to adapt the internationalization strategies of companies to local and foreign standards. We assist American companies with their commercial insertion into foreign markets, and provide advice to foreign companies in compliance with the laws of the United States.
We have extensive experience with advising clients in the drafting of international contracts.