International Corporate Governance - Essay Example

GLOBAL POLICY Foreword: This research paper tries to evaluate critically the thesis that the global regulatory environment and governance playsan important role on both the location and impact of Multinational enterprises (international business) Thesis: The global regulatory environment and governance implement a significant function for both the location and impact of Multinational enterprises (international business) It is sure that the international corporate governance and policy influence greatly both the policy of a company and its location. The whole world can be represented in a system with its hierarchy. Therefore no company can act independently in the world arena. There are many factors that influence its performance: economic, political, geographical, but one of the most essencial is the one that is connected with the international regulation. According to Bauwhede who investigated the relation between a company’s performance and its government compliance and made the conclusion that the performance advantage depends greatly on the compliance of the governing bodies (Bauwhede, 2009). A prior European study says that there is a not positive connection between the governmental complaisance and the performance of the organization. However, when the investigation was fulfilled in the field of international relations it turned out that a tough and well-planned policy in the world arena affects a business in a positive way. It can be clarified by the following fact: a company when having certain barriers, laws and regulations has to perform better in order to stay competent in the market (Sonnenfeld, 2004, p.110). The best results are in those countries where the rules for shareholders as well as for the company management are strict and well-organized. It encourages a fair policy towards the shareholders as well to the employees of a company. When the international rules are strict a company finds it difficult to conceal the profit and that is why the whole performance of it improves. Another conclusion that can be deducted is that the more cooperation with the government is the better performance results a company demonstrates (Denis, 2003, p.3). Such practice is also attractive for investors who find clear policies more stable. The way the decisions are taken is also influenced by the country policy in this regard. It should be mentioned that business is surely the main actor in the world arena nowadays. The whole world is connected through business operations, trade, and stock exchanges. Speaking about global governance such organization as the World Intellectual Property Organization cannot be omitted. The main function of this organization is to follow that the laws and rules of any intellectual property were observed. Intellectual property is the matter of concern for the majority of world organizations since they are involved in different kinds of manufacturing and service provision. Any product that is developed has to be patented without this the law is considered to be broken. Trying to choose the countries with the soft patent system businesses just try to simplify the legal procedures that a business is sure to have (Kim et al, 2005, p.45). In a sense it determines the location and the fairness of the business policy. When the bureaucratic system is rather complicated, the businesses can shift partially the business into the shadow economy. Another issue that influences greatly the global economy is the Global security governance system. In every country the security level varies and to a larger degree it is determined by the level of country development. The more a country is developed, the more difficult it is to get to its market. Such giants as the USA, the UK, France, Germany, Italy and Greece have secured their markets from illegal and numerous penetrations. The only way to increase the market security is to set up barriers that prevent small and not capitalized firms form getting into it. The market security embraces also the notion of shadow economies. According to statistics in the underdeveloped countries the most part of the economy is in the shadow. The next aspect that is to be mentioned is the corruption level. Some countries such as Russia, India and other countries abound in bribery. This issue is rather important for international businesses since the amount of money to set up a business, and to maintain it – sometimes exceed the profit several times in these countries. This factor on the one hand frightens serious businesses away, while it attracts those businesses that are willing to decide everything with money (Luo, 2005, p.20). It can be easily deducted that if a business strives for giving a bribe, it has deviations either in the product quality or in the accounting system. According to the Corruption Committee the attempt to give a bribe is the same crime as to take it. Then the global policy of banking affairs also plays a very important role in the business policy and decision about its location. The banking policy involves such aspects as the current interest rate, the credit accessibility, the chance to keep money in a bank, to mortgage assents in case of necessity. In general, the banking system dictates its rules to a business since it is usually the main source of the initial capital. The credit policy is dictated by the national bank in most of the countries (Alpey, 2005, p.70). A central bank in its turn coordinates its rates and reserves with the World Bank of Reconstruction and Development. Those countries where the credit and monetary policy is stable and beneficial for a business development are more likely to attract investors and international companies. The global policy in respect of the wars and different conflicts is also of great importance for the business location. Surely, the majority of international businesses try to avoid operating in those countries in war or other political conflict. It affects greatly to purchasing power of the country, the security of business and the company policy changes depending on the situation of the environment. Wars and revolutions distribute greatly the public confidence which, in its turn increases the crime rate. The business leaders will certainly take into account all disadvantages of working in such environment. Nevertheless, some businesses strive for getting into the countries with military conflicts - it is explained by their specific products that are either in demand during such conflicts or that can suggest the lower prices. The world policy is directed on reduction of such conflicts, though some businesses really make money on such situations. The notion of global governance is closely connected with diplomacy, or in other words with the foreign policy of the country. Foreign policy can be directed on cooperation or on being independent from other countries. The examples of the latter ones are the former USSR, Cuba and others. In this case the businesses have to make a lot of efforts to be allowed to penetrate into the market. The majority of the developed countries of the world invite investors and giant businesses to the markets. The locked economy is likely to fail sooner or later, since the economy has no stable and continuous inflows (Larcker, 2006, p.1111). It is to be pointed out that nowadays all processes and businesses in the world arena experience the influence of globalization. It means that the world policy concerning international companies is almost the same in every country – it becomes more unified. Globalization also consolidates the businesses as well as economies of different countries. To sum up everything stated above it is necessary to point out that the global regulatory environment and governance plays an important role on both the location and impact of Multinational enterprises. The reasons stated above such as: Global Security, Banking system, military conflicts in the country, diplomacy, globalization and the openness of the economy have great influence on the policy and location of the international businesses. The most important thing is that international business develops the economy of any country. It brings new investments, opportunities and job paces to a nation. No international business can exist without being influenced by the global policy. Globalization made the world and businesses bigger and to be conformed with the world general rules and regulations. BIBLIOGRAPHY 1.Alpey, G., Budur, M., Ener, H., & Talug, C. 2005 ‘Comparing board-level governance at MNEs and local firms: lessons from Turkey’, Journal of International Management, vol. 11, no 1, pp. 67-86 2.Bauwhede, H.V. 2009 ‘On the relation between corporate governance compliance and operating performance’, Accounting and Business Research, vol. 39, no 5, pp. 497-513 3.Denis, D.K. and McConnell, J.J. 2003 ‘International corporate governance’, Journal of Financial and Quantitative Analysis, vol. 38, no 1, pp. 1-36 4.Kim, B., Prescott, J.E., & Kim, S.M. 2005 ‘Differentiated governance of foreign subsidiaries in transnational corporations: an agency theory perspective,’ Journal of International Management, vol. 11, no 1, pp. 43-66 5. Luo, Y. 2005 ‘How does globalisation affect corporate governance and accountability? A perspective from MNEs.’ Journal of International Management, vol. 11, no 1, pp.19-41 6. Luo, Y. 2005, ‘Corporate governance and accountability in multinational enterprises: 7. Concepts and agenda,’ Journal of International Management, vol. 11, no 1, pp.1-18 7. Verbeke, A., & Greidanus, N.S. 2009 ‘The end of the opportunism v trust debate: Bounded rationality as a new envelope in research on MNE governance,’ Journal of International Business Studies, vol. 40, pp.1471-1495 8. Sonnenfeld, J. 2004 ‘Good governance and the misleading myths of bad metrics.’ Academy of Management Executive, vol. 18, no 1, pp. 108-113. 9. Larcker, D.F., Richardson, S. A. and Tuna, I. 2006 ‘Corporate governance, accounting outcomes, and organizational performance.’ Working paper, Graduate School of Business Stanford University and The Wharton School, University of Pennsylvania. 10. La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. 1998 Law and finance. Journal of Political Economy, vol. 106, no. 6, pp. 1113-1155. Read More