Legal and Ethical Issues Affecting Multinational Corporations in East Asia - Literature review Example

? Legal and ethical issues affecting Multinational Corporations in East Asia: Literature review Supervisor: November4, 2013 Legal and ethical issues affecting Multinational Corporations in East Asia: Literature review Introduction A multinational corporation is an incorporated organization that is registered in more than one country or operates in more than one country. Its wide scope of operation, despite the wave of globalization, faces diversity challenges as people from different regions have their predominant ethical norms and different countries have their own domestic legislations that may be different from laws in other countries. Trend in the wave of globalization, with its effects of unifying behaviour and practices across the world however promises to bridge the diversity gap and it is important to understand the extent of existing gap in order to succeed in foreign operations. This review focuses on developed information on ethical and legal environments in the East Asia to inform a study that seeks to identify significant legal and ethical factors in the region. Review History of legal and ethical environments in East Asia International law establishes the basis for legal factors in a multinational corporation’s environment. An organization that operates in the international scope is subject to treaties between the host country and the countries in which the corporation operates. Secondary to the treaties may be laws in the host country and laws in the countries of operation and these requires knowledge of contemporary legal environment for a multinational corporation in order to integrate all applicable laws in the organization’s scope of operations. Some of the bases of legal requirements for the multinational corporations, according to Mayer and O’Toole, have been “bribery, competition, cronyism, and public governance,” human rights and fair treatment of stakeholders (2013, p. 159). History of the East Asia region suggests existence of longitudinal and cross sectional differences in the region’s macro-environment to require a point analysis. Political environment in the region has changed with secondary effects on social, economic, and legal issues and this suggest legal and ethical environment in the region are dynamic. Differences in social perceptions across the region’s countries also mean that applicable ethical issues may vary and multinational corporations that operate of intend to operate in the region must be sensitive to such differences, however small they may seem. The legal environment that remains susceptible to political forces also remain dynamic within and across countries and multinational corporations must not only be informed of existing legislations, but must be mindful of the level of volatility of political environments in each member country of the East Asia region. Existence of many levels of legislative authority such as regional and bilateral and incorporation of the region’s developed legislation in international agreement with countries that wish to trade with members of the region explain diversity in the legal environments. This is because the regulations by the different levels remain binding on operations within their jurisdictions and the vast number of such levels in the region means that numerous regulations exist and the regulations may change with changes in leadership within each level of legislative authority (Ebrey, Waithall and Palais 2009, p. 20; Cheng and Cheng 2010, p. 12, 13). Dynamism in the values, which could be effective on ethical values among the region’s natives and ethical obligations among foreign corporations, has also been reported in the area. Expansion of the region’s economic potentials in the 1990s let to infiltration from other cultures such as the West. Western values and formalities became benchmark and led to criticisms of the region’s values and practices. Even though the region managed to resist assimilation of the western culture in total, the two cultures have interacted to influence one another. The West has incorporated values from East Asia in as much as East Asia has incorporated some of the values from the West, a scope that supports the position of a dynamic environment in the region. Exposure to other regions and effects of globalization and technology that transforms each culture also suggests dynamism in the region’s ethical and legal environments (Jenco 2013, p. 237- 258). The region’s resistance to forces acting against its values, especially social values, is evident in its systematic cultural revolution that shows independence from high level of political volatility in the region (Currie et. al. 2010, p. 801-803). Ethical values however form a strong basis for people’s opinions and actions and may influence political and legal environment through activists’ actions (Ikeda, Kobayashi and Richey 2012, p. 474- 477). A level of rigidity of the region to external forces is also evident in China’s response to international pressure following the Opium war because forcing china into international trade did not change the country’s perception of international relations (Svarverud 2011, p. p. 306). On the contrary, the region became a trade hub with a potential to influence the globe into its values (Dubois 2013, p. 12- 14). Legal environment in East Asia Legal environments in the region have undergone changes that are significant to multinational organizations. In Japan, for example, the legal environment has been strict to allow only native legal experts to practice. Multinational corporations operating in the country therefore had to employ local legal experts for their legal services in the Japan but change in regulations removed the restriction in the year 2012. Organizations, whose countries have trade agreements with Japan can, since the change became effective, use personnel from their domestic countries for legal services in Japan (John 2012, p. 237). Liberalization has been evident in the entire East Asia group with the member countries opening their border to international trade. Laws that loosen trade barriers have been enacted in the member countries and increased competitiveness in the regional market (Chang 2006, p. 410-413). This trend has also shifted regulatory measures from government’s efforts to organizations’ self-regulatory measures. This is because corporate responsibility remains a tool to competitiveness in regions with weak regulations (Krishnamurti, Sevic and Sevic 2005, p. 107). Changes in government’s regulatory measures are believed to have been significant to the economic expansion that East Asia experienced in the past decades. Incentives in the region’s export industries, for example, promoted the growth and its potential effects of attracting domestic and foreign investments are likely to have contributed to the growth. The governments also applied multiple approaches in the incentives to communicate dynamism in the environment (Agarwal and Mitra 2010, p. 301, 302). Despite these efforts, some aspects of the region’s regulations remain weak and suggest possible future changes (World Bank 2012, p. 2). In stock market, for example, some governments’ initiatives to regulate prices have failed as was experienced in the case of Taiwan. Korea has tried to avoid such failure by allowing for firm’s independence and these experiences offered bases for legal environments in regions such as East Europe. Policies in some countries in the region, such as Japanese industrial policy have also been influential to policy changes in other countries in the East Asian region (Dickie 1991, p. 123- 125). The regional market also shows a trend of continuity in evolution of its regulatory policies that change to align market sectors with the sector’s environments and needs of the sectors. Regulation in the region’s housing finance is an example. It has existed for a long time that has realized multiple phases of regulatory changes. The changes have also occurred at different speeds across Asian countries because some countries still lack significant regulatory measures and regulatory bodies, such as Afghanistan, while others have weak regulations and others have strong regulations. Such a difference could also exist in other sectors and means that a multinational corporation that seeks to operate the region requires target specific research on the country of interest (Rizvi 2012, p. 17, 18). Trade integrations among countries from the region might however harmonize regulations in future (Shin and Wang 2003, p. 1-3) though no certainty exist because there are many regional treaties but they have failed to harmonize the region’s regulations (International Business Publications 2009, p. 116). Ethical environment in East Asia Like its legal environment, East Asia has distinct ethical environment from other regions. A study among business ethics and accounting students established this because preferences over ethical values by students from the region had a significant difference in preferences for ethical values among students from other regions (Mirskehary 2009, p. 153- 160). Another study on ethical values among students from the United States and students from East Asia identified distinct values in the region with focus on Confucian (Chung, Eichenseher and Taniguchi 2008, p. 129- 131). There are however arguments that ethics in East Asia, from virtue ethics perspective, corresponds to ethical values in other regions like the United States. Interactions in the globalized environment also suggest a convergence in ethical values as East Asia interact with the rest of the world (Koehn 2013, p. 715). Conclusion Existing literature identifies significance of ethical and legal environments on multinational organizations’ operations. Emergence of East Asia as a centre for international trade also establishes the region as a centre of interest for multinational corporations and the organizations’ need to understand trends and scope of the region’s ethical and legal environment. Previous studies reveal dynamism in the environments in East Asia and variations in the environments across countries in the region. The study aims at investigating the current ethical and legal environment in the region in order to inform multinational corporation’s practices for successful ventures. Reference list Agarwal, M and Mitra, S 2010, “Role of government in trade and investment boom: Lessons from East Asia,” Journal of Economic Policy Reform, Vol. 13, No. 4, pp. 285-304. Chang, S 2006, “Business groups in East Asia: Post-crisis restructuring and new growth,” Asia Pacific Journal of Management, Vol. 23, No. 4, pp. 407-417. Cheng, C and Cheng, J 2010, Customs law of East Asia, Kluwer Law International, Alphen. Chung, K Eichenseher, J and Taniguchi, T 2008, “Ethical perceptions of business students: Differences between East Asia and USA and among “Confucian” cultures,” Journal of Business Ethics, Vol. 79, No. ?, pp. 121-132. Currie, T et. al. 2010, “Rise and fall of political complexity in island South-East Asia and the Pacific,” Nature, Vol. 467, No. 7317, pp. 801-804. Dickie, R 1991, “Western business should approach Eastern Europe mindful of experience in East Asia,” California Management Review, Vol. 3, No. 4, pp. 118-126. Dubois, T 2013, “Asia and the old,” History Today, pp. 12-19. Ebrey, P Waithall, A and Palais, J 2009, East Asia: A cultural, social, and political history, Cengage Learning, New York. Ikeda, K Kobayashi, T and Richey, S 2012, “Recreation and participation: Testing the political impact of social interaction,” Social Science Quarterly (Wiley Blackwell), Vol. 93, No. 2, pp. 464-481. International Business Publications 2009, Malaysia customs, trade regulations and procedures handbook, International Business Publications, Washington. Jenco, L 2013, “Revistiting Asian values,” Journal of the History of Ideas, Vol. 74, No. 2, pp. 237-258. John, J 2012, “The KORUS FTA on foreign law firms and attorneys in South Korea-a contemporary analysis on expansion into East Asia,” Northwestern Journal of International Law & Business, Vol. 33, No. 1, pp. 237-282. Koehn, D 2013, “East meets West: Toward a universal ethic of virtue for global business,” Journal of Business Ethics, Vol. 116, No. 4, pp. 703-715. Krishnamurti, C Sevic, A and Sevic, Z 2005, “Legal environment, Firm-level corporate governance and expropriation of minority shareholders in Asia,” Economic Change & Restructuring, Vol. 38, No. 1, pp. 85-111. Mayer, J and O’Toole, D, 2013, Good Business: Exercising effective and ethical leadership, Routledge, Oxon. Mirskehary, S 2009, “Business ethics and accounting students: Australia, South Asia and East Asia,” Asian Journal of Finance & Accounting, Vol. 1, No. 2, pp. 146-162. Rizvi, Z 2012, “Regulatory regimes and business models in Asia,” Housing Finance International, Winter 2012, pp. 17-20. Shin, K and Wang, Y 2003, “Trade integration and business cycle synchronization in East Asia,” Vol. 2, No. 3, pp. 107-140. Svarverud, R 2011, “Re-constrcting East Asia: International law as inter-cultural process in late Qing China” Inter-Asia Cultural Studies, Vol. 12, No. 2, pp. 306-318. World Bank 2012, Doing business 2013: Smatter regulations for small and medium-sized enterprises, World Bank, Washington. Read More