Issues for Global Virtual Organizations

Last Updated: 04 Jul 2021
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The increasing tendency of local firms to expand their trade boundaries by setting up global centers has drawn people’s attention to the efficacy of International laws. The stand-out features of these International trade laws are “1) there is no single legislative source of international law. All countries of the world and numerous international organizations are responsible for enacting international laws. 2) there is no single world court that is responsible for interpreting international law. There are, however, several courts or tribunals that hear and decide international legal disputes of parties that agree to appear before them.

3) there is no world executive branch that can enforce international laws” (Henry R. Cheeseman, 2004). These constraints have, in recent times, raised serious doubts about the resolution of legal and other issues. “The power of Web enablement is that geographical boundaries disappear for an enterprise. Thus, an E-commerce initiative can easily become a global E-commerce initiative” (Prasad Bingi, Ali Mir & Joseph Khamalah, 2000). Prior to the start of any virtual organization, the proprietors must consider the social and legal issues that may arise at some point in their business.

Riordan Manufacturing is a global plastics manufacturer owned by Riordan Industries, a Fortune 1000 enterprise. According to its fact sheet, it employs 550 people and has revenues in excess of $46 million. Over the years, like any global organization, Riordan Manufacturing has had concerns relating to legal and ethical issues. Global Virtual Organizations 2 Legal Issues in Virtual organizations When a company like Riordan Manufacturing decides to operate through decentralized units in different locations, it has to grapple with issues that might arise due to differences in the laws in countries.

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“Companies’ growing reliance on the Internet as an integral tool of commerce may be increasing the likelihood that such entities will find themselves exposed to a foreign jurisdiction as a result of their Internet related activities” (Jacqueline Klosek, 2002). Usage of electronic signatures and electronically formed contracts is a tricky proposition since different jurisdictions have disparate requirements regarding contracts. Though the issue of Web contract enforceability has not been resolved in its entirety, a few e-business enterprises still use web contracts as valid agreements.

The issue of web contract enforceability is compounded by uncertain laws in other countries (Jacqueline Klosek, 2002). Companies need to understand the local laws on contracts and alter their contract system accordingly. Riordan has a decentralized unit in China and in China, business people rely on trust and verbal contracts more than their American counterparts (Kotabe & Helsen 2004). Virtual organizations rely, predominantly, on web based marketing and advertising. Jacqueline Klosek (2002) writes that: There are no federal laws that regulate the distribution of commercial emails.

In fact, certain Jurisdictions like Australia, Canada and the US entail internet operators to formulate their own policies on the distribution of unsolicited Global Virtual Organizations 3 commercial emails. However, the regulation of unsolicited email is governed by statute, to a large extent, in countries like Japan and the EU (p. 4). Hence, companies like Riordan Manufacturing need to be aware of the requirements of the jurisdiction of the country concerned, with regard to their web marketing campaigns. Other Issues in Global E-Business

Resolution of liability issues plays an essential role in the smooth conduct of business. Virtual organizations operate in jurisdictions that have dissimilar laws on liability claims. In many judiciaries, certain mandatory warranties apply on goods regardless of what is stated in the contract (Jacqueline Klosek, 2002). Jurisdictions like Belgium and Netherlands do not recognize “indirect or consequential damages” and hence, are not liable for compensation (Jacqueline Klosek, 2002). Incognizance of the local law could lead to legal entanglements, later.

The company has to frame an agreement that incorporates specific terms on liability claims. Since there are vague laws about the jurisdiction to resolve legal issues, in most cases, companies find themselves subject to the law of the local jurisdiction. “The determination of applicable jurisdiction for internet-based transactions is far from a well-settled area of the law” (Jacqueline Klosek, 2002). One of the key challenges that Riordan Manufacturing faces in its operating unit in China is the issue of ethics and cultural differences.

What is acceptable in the US might not be acceptable in China, where the company would be dealing with a different workforce and different customers. Virtual organizations must modify their business strategies as per the requirements of the local culture. Laws on Bribery are similar in the Global Virtual Organizations 4 US and China. However, in certain sections of the Chinese society, bribe is considered a privilege that can be enjoyed by the upper strata of society (Ke Li, Russell Smyth & Shuntian Yao, 2005). This could mislead a company like Riordan into believing that bribe is not illegal.

Consequently, they find themselves tried by the Chinese Jurisdiction that treats bribery as illegal. Conflict of laws Laws that bind E-Commerce vary from one country to another. Most of the cases involving international law disputes are heard by national courts of individual nations. This is primarily with regard to commercial disputes between private litigants that do not qualify to be heard by an international court. Some countries do have specialized courts that hear international commercial disputes. A few other countries permit such disputes to proceed through their regular court system.

In the United States, commercial disputes between U. S. companies and foreign governments or parties may be brought in to a federal district court (Henry R. Cheeseman, 2004). However, deciding which jurisdiction is applicable cannot be generally answered and it depends on International Private Law, International terms of collision and the consent of the parties to such jurisdiction (Thomas Wallentin, Katharina Regner, Marco Conte & Heloise Deliquiet, n. d) Conclusion Business through the net involves increased convenience and lower costs for e-manufacturers like Riordan Manufacturing.

However, they have to deal with the reality of getting affected by the laws of a foreign state. Companies need to be aware of the jurisdictive limitations of their business in a foreign state and consistently review their Global Virtual Organizations 5 business strategies and the way they conduct their business. This could save them from a lot of embarrassment through legal hassles later on. Global Virtual Organizations


  1. Shim, Jae. k , The International Handbook of Electronic Commerce, 2000
  2. Prasad Bingi, Ali Mir, and Joseph Khamalah, The Challenges Facing Global E-Commerce: A Multi-Dimensional Perspective, 2000
  3. Henry R. Cheeseman, Business Law: Legal, E-Commerce, Ethical and International Environments, Fifth Edition (2004), Ch. 8
  4. Kotabe, M. , & Helsen, K. ,Global Marketing Management (3rd ed. ) (2004)
  5. Ke Li, Russell Smyth, Shuntian Yao, Institutionalized Corruption and Privilege in China’s Socialist Market Economy:A General Equilibrium Analysis, 2005
  6. Jacqueline Klosek, Key Pitfalls in Conducting International Trade via the Internet, 2005
  7. Thomas Wallentin, Katharina Regner, Marco Conte & Heloise Deliquiet, Legal Issues in Virtual Professional Communities, n. d.

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Issues for Global Virtual Organizations. (2018, May 23). Retrieved from

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