Contrasts in Long- Financing and Ownership of Business and National Differences in Management - Term Paper Example

Do Contrasts In The Long-Term Financing And Ownership Of Business Explain National Differences In The Governance And Management Of Firms, And Fundamentally Account For The Success Of Major Economies? Table of Contents 1. Introduction 3 2. Describing Key Theories and/or Areas Surrounding the Question. 4 2.1 Key Point 1. The Relationship between Long-term Financing and Performance at Country Level 4 2.2 Key Point 2. The Relationship between Ownership and Performance at Country Level 6 2.3 Key Point 3. The Relationship between Governance and Management System and Performance at Country Level 7 3. Critical Evaluation and Arguments 10 4. Conclusion 12 References 14 Bibliography 19 1. Introduction Globalisation process has increased the complexity as well as level of competition almost in all the sectors of the business. Currently Multinational Corporations across the globe are continuously striving to differentiate their products and services in order to attain greater competitive advantage over their rival firms. In this competitive pace, the phenomenon of long-term financing and ownership structures of the ventures is ascertained to play significant role in terms of strengthening the nations’ financial position (Caprio & Demirguc-Kunt, 1997). Noticeably, the notion of long-term financing and ownership structure of the global firms often rationalises and describes national differences with respect to the governing system and management of firms, and fundamentally account for the success of national economies (Deakin, 2010; Mayer, 1996). Keeping with the emerging competitiveness of the corporations across the global business environment, the assignment aims to apparently understand whether the long-term financing and ownership explain differences of the global nations. In order to critically assess the objective, the study compares the governance and management systems of the firms across different countries that are accountable to achieve success of the national economics. The discussion in this regard includes a clear comparison across the nations, industries, companies along with their business functions. 2. Describing Key Theories and/or Areas Surrounding the Question. With reference to the critical view of the question to be addressed, there can be recognised numbers of key factors that enables to understand the components that contribute towards success of major economies. The question incorporates major elements including long-term financing and ownership of the corporations that significantly explain the future economic growth of a particular nation. Moreover, the question also depicts a clear understanding about the key factors including governance and management systems of the corporations that improve the financial condition of the companies and also enable countries to maintain long-term economic growth. The major factors associated with the economic growth of the corporations within the major global nations can be easily understood through the following key areas. 2.1 Key Point 1. The Relationship between Long-term Financing and Performance at Country Level In relation to the concept of long-term finance, the term is considered as the primary key factor for economic transformation of a particular company and a nation as well. In order to o fund long-term investments, governments and organisations are required access to probable, long-term financing. The ability of the country to make such long-term financing available largely relies on the capacity of the financial system to direct the savings of governments, corporates and households proactively (Group of Thirty, 2013). The long-term finance encompasses various types of tangible assets including factories, plants, machineries and equipment, and buildings among others that are likely to increase future economic prospects of a business or country to strengthen the economic growth. On the other hand, the intangible asset within the long-term finance generally refers to the education and research and development (R&D) among others to increase the efficacy of attaining positive economic growth of the business or a particular nation (Gospel & Pendleton, 2003). In relation to the current long-term investment of the most developed markets such as United States, United Kingdom and Germany have been observed to significantly improve the growth percent of their tangible and intangible assets (Group of Thirty, 2013). The following graphical representation depicts the annual growth of long-term investment performed by these countries during the year 2010-2011. Source: (Group of Thirty, 2013) The above statistical data represents the investment growth of the US, the UK and Germany in terms of their long-term investment in different tangible and intangible assets that significantly empowers the economic position of the countries. In relation to the current long-term financing portfolio in the US, the corporations are often observed to highly incline with long-term asset management and investment to strengthen their economic sustainability. The recent statistics of the country depicts a higher level of financial portfolio in terms of investments and management of their numbers of tangible and intangible assets and resources (Group of Thirty, 2013). 2.2 Key Point 2. The Relationship between Ownership and Performance at Country Level Long-term ownership system can also be considered as one of the key factors that facilitate to refurbish economic condition of both the corporations and the countries. In the context of the current scenario in the US commercial sector, the higher augmentation of privatisation of the business institutions along with competitive ownership structure facilitates the corporations to build strong position in different global destinations (Khan, 2011; Doh & Stumpf, 2005). In relation to the current business environment in the US, the business efficiencies are often observed to influence by different types of governance systems that enables organisations to significantly strengthen their financial goals. The effectiveness of governance systems used by the corporations is further recognised to influence by the existing market competitive levels of the organisations within their respective business industry. Hence, the process enables the organisations to gain more leverage on their financial performance and achieve long-term profitability as compare to the UK or German based corporations (Clarke & Rama, 2008). In comparison to the similar aspect of the US markets, the UK based corporations have also been observed to implement significant strategies towards improving their commercialisation through conducting different forms of ownership systems (The Financial Reporting Council Limited, 2013). The continuous refurbishment of ownership systems is ascertained to empower the UK commercial sector to gain significant advantage to compete with its rivals across the different global markets. According to various observations, it is recognised that the governance practices involves deficiencies to performance effective system of governance to stabilise the financial goals of the corporations (Financial Reporting Council, 2010). For instance, the corporations within the continental Europe, the existing governance systems are significantly stiffing the organisations to perform innovative business strategies to achieve growth. The mechanism therefore, considerably reduces the capabilities of the organisations to gain competitive position against the US based corporations. As similar to the UK, the ownership systems in the commercial sector of Germany has also been witnessing significant deficiency that often lead the multinational corporations of the country to face various types of hurdles. The governance system of the corporations in the German commercial sector has been experiencing considerably lower growth in terms of performing long-term initiatives as compared to both the US and the UK based corporations (Hurst, 2004). In relation to the various studies, it has been ascertained that the fragilities in maintaining relationship amid the boards’ performance and turnover with concentrated ownership system of the organisations often overlooks the interests of the shareholders. The organisations within the German governance system are focused on extracting private benefit and capitalising internal assets. The process indeed, minimises the organisational capabilities to gain competitive position in the global markets while performing business operations beyond the Germany (Mayer, 1996). 2.3 Key Point 3. The Relationship between Governance and Management System and Performance at Country Level The governance and management systems have also witnessed to play major role in developing the economic performance of the organisatoiopns. In this context, the significant changes to governance along with accounting and auditing regulations influence the economic performance of different operational functions of the corporations. The recent phenomenon regarding the practice of corpoprate social responsibility (CSR), organisations are highly inclined with taking the considerable advantage of the mechanism (Jackson, 2009; Keasey & et. al, 2005). Moreover, the code of business ethics and governance systems of the corporations have been considered to highly improve the financial performance of the organisation to achieve their long-term financial goals (Maher & Andersson, 1999). In relation to the present competitive business environment, the practice of ethics, corporate governance and CSR by the US based corporatuions are considerably differ than the organisations based in Germany and other countries in Europe. With this regard, the prcatice of major accounting frauds along with various types of corporate malfeasance during the year 2002 had raised a big question for the US in ensuring the adequate practice of business ethics, governance and social reponsibility of the corporations (Tsoutsoura, 2002). However, currently organisations have been practicing strong set of code of ethics through ,maintaining adequate integrity, accountability and transparency of the financial information. The continuous compliance with the code of business ethics along with strong governance and social responsibility practices of the US based multinational corporations have frequently observed to strengthen their capital markets by an unabated inflow of global economy (Perera, 2011; Clarke & Rama, 2008). As similar to the US, the most of the the UK based corporations have also been faced a dramatic deficiency of practicing CSR or strong code of business ethics. The corporate malfeasance along with different accounting frauds during the year 2003 have radically influenced the capital market of the European companies to face crisis. The scenario had further led the European corporations to face drastic economic downfall due to the lossing of their major shareholders (Hursht, 2004). The malfeasance practices along with accounting frauds of few major European corporations had also imposed the investors and other groups of stakeholders to invest in various other global firms across the different nations. The corporations based in Europe indeed had also enabled to gain their financial performance through maintaining a strong set of business ethics along with widening their social responsibility related activities (Deighton & et. al, 2009). In relation to the new era of globalisation, the UK based corporations are often witnessed to take appropriate approach through raising the CSR bar within their business policies. The current refurbishment in practicing strong set of business ethics has acted as a key instrument for CSR approaches that have significantly reinforced the corporations in the UK to gain their capability to compete against the other organisations from diverse geographical locations (PricewaterhouseCoopers, 2013). In the context of Germany, an unabated development of practicing strong code of ethics and CSR have significantly enabled the corporations to maintain their sustainable position in diverse business industries. The corporations have been widely acceptd to perform effective governance strategy that enables to uphold the interests of each group of stakeholders (Ulric & Joachim, 2002). In relation to the governance system, majority of the renowned German based corporations can be recognised to effectiveely perform their strong govrnance systems that meet the expectations of their shareholders. In this context, the continuous assurance of maintaining adequate accountability and transparency of the financial information empowers the organisations to effectively balance their growing economic inflow from various diverse markets across the world (Deloitte Touche Tohmatsu, 2014). Moreover, the corporations have also beenobserved to perform wide range of CSR activities that has further enabled them to gain their comeptitive position in various business fields such as automobile manufaturing, technology and aerospace engine manufacturing industries as compare to the major US and UK based corporations (Deloitte Touche Tohmatsu, 2014). 3. Critical Evaluation and Arguments From the foregoing discussion, it is ascertained that the long-term financing and ownership play a vital role for the organisation to gain their financial stability (Claessens & Yurtoglu, 2012). In relation to the practice of governance and management system of the corporations based in the US, the UK and Germany, there can be observed major similarities with respect to the practice of the organisations. However, in various scenarios, corporations have also witnessed negative impact on their long-term sustainability in the competitive business environment. The continuous practice and refurbishment of business ethics and CSR are determined as the long standing factors for the corporations to strengthen their economic position (Schaffer, 2005; Gospel & Pendleton, 2003). Therefore, it can be stated from the comparison of the corporations from diverse geographical locations that the adequate compliance with the ethical standards and CSR principles significantly empowers organisations to attract significant number of global investors and other groups of stakeholders. Furthermore, it can also be evaluated from the comparison that, a strong governance structure and accountability roles also determine corporations to gain the leverage and improving their capital markets through global economic inflow. However, the comparison of the nations also revealed certain paramount differences. Clearly, the ineffective or incapable of practicing governance and management system have also led the corporations to face major hurdles and it also put radical implication of the nations to gain economic stability. Nevertheless, the circumvention of ethical conducts and poor CSR strategic measures had also been observed to substantially impact on the economic performance of both the UK and the US market 4. Conclusion The notion of governance and management system has recognised to have major influence not only on the development of the capital market, it also critically influences on the corporations to exert resource allocation. The aforesaid comparison of the corporations from the developed business markets such as the US, the UK and Germany, it has widely witnessed that the strong governance and management system critically plays major role for the organisations to gain financial stability that determine the economic development of a particular nation. In relation to the recent era of transforming capital mobility, the strong and effective governance framework plays an essential role for the corporations and the countries to achieve industrial competitiveness. Responding to the aforesaid comparative study, it has also been recognised that the governance systems of the corporations from these three nations possess their own strengths along with weaknesses that have diverse economic implications. The efficacy of different governance and management systems are significantly influenced by the dissimilarities within the legal and regulatory frameworks along with the traditional and cultural aspects of the nations. Nevertheless, the differences of the governance system of the corporations may also vary due to their diverse product market or industry background. With reference to the comparative analysis of the corporations from the US, the UK and German business markets, the continuous practice of strong governance and management systems had been observed to radically transform their economic condition. Moreover, the integration of strong ethical conducts and CSR strategies in the business operations have also been recognised to improve the economic background of the overall commercial sectors that that are fundamentally account for achieving major financial success of the nations. References Caprio, G. & Demirguc-Kunt, A., 1997. The Role of Long Term Finance: Theory and Evidence. The World Bank, pp. 1-31. Clarke, T. & Rama, M., 2008. Fundamentals of Corporate Governance. SAGE Publications. Claessens, S. & Yurtoglu, B., 2012. Corporate Governance and Development - An Update. International Finance Corporation. Deakin, S., 2010. Corporate Governance and Financial Crisis in the Long Run. 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