International Business - Essay Example

What can describe corporate governance is a structure of responsibilities and rights shared within parties who posses a stake in a company. According to the article, researchers direct too much of focus on corporate governance on developed countries leaving emerging economies like China and India with relatively too little focus on research (53). Due to their weak governance, firms in developed countries tend to discount firms in emerging economies. As such, it will be of paramount importance if policy makers could employ corporate governance reforms since they would in turn increase firms in emerging economies access to capital as well as enhance investors’ confidence in these firms.

Given the perspective of most foreign investors that emerging economies of China and India are increasingly growing to be of great importance in terms of investment opportunities and source of growth, there should be availability of reforms set to revolutionize the systems of governance in firms in these economies (55). The four challenges include lack of incentives, power in the hands of dominant shareholders, and inadequate number of qualified independent directors deters growth in these emerging economies as well as underdeveloped systems of external monitoring.

The main driving forces Arguably, even though there many other factors that are contributing to corporate governance reforms, it is clear that globalization and privatization take the biggest part. There are a number of effects that privatization has on corporate governance reforms. For instance, documented evidence shows that, since when emerging economies started privatizing state owned enterprises a few years ago, there emerged a huge volume of privatization cases ranging from $8 billion in 1990 to more that $65 billion in 1997 (57).

In privatization, transfer of ownership is from the sate to new private owners in which it may include local individuals, management, employees, and institutions as well as foreign investors. Following this state of ownership, the new and diversified structure of ownership renders corporate governance a vital aspect in emerging economies. In the vein of privatization, however, challenges and obstacles occur when a few dominant executives resolve to foster their self-interests by maximizing on their private interests as opposed to owner’s interests.

This creates the old or traditional agency problems that in turn make the emerging economies rigid in terms of exercise of authority (59). Additionally, the aspect of privatization led to creation of principle-to-principle agency problems that appear unique and different to emerging economies. As a result, within these indifferent contexts of agency, the majority or large number of shareholders end up controlling the firm and on the other side expropriate the interest of the minority shareholders in the firm.

Both China and India became increasingly integrative into the international business at a time when they started reforming their economies with India embarking on liberalism in the wake of 1990s. Globalization led to great and tremendous contributions towards reforming corporate governance of both China and India. This is because, 2002 witnessed China replace the US as the world’