Economic Globalization And Corporate Governance

Economic Globalization

According to (Held and McGrew 1999: 2), the word Globalization means ÐŽ§ÐŽKa widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, the financial to the spiritualЎЁ.

Globalization is everywhere. From the economic aspect, the meaning is even hard to define. The main idea about Globalization is about connection. The connection exists between people and also between countries. Economic Globalization has the meaning of enhancing the connection level between different capital, products, people and services.

Globalization introduces different types of effects on the economic system. The first one is about trading business. In the old days, the product is localize and is difficult to move from one place to another. Trading, although it is a traditional business, it is limited by location and capital flow in the old world. The growth in global (GDP) shows that the economic is growing in a tremendous amount. This is one of the signals to show the economic globalization. When we can take a look at our home, it is not a surprise to find the household applications which made in Japan. For the clothes, as a matter of course, nearly everyone can find one with the label showing that it is made in China or Malaysia. Suppose we want to buy a car, different types of model from all over the world are available. We have already adopted the idea of globalization in our daily life.

The next thing is about capital. Globalization introduces the cash flow between different places over the world. Nowadays, everyone is talking about investment. Investment is kind of process that make use money to provide capital appreciation or income. Under globalization, we can see that it is easy for in individual investor to put their investment on different locations. It is a kind of foreign investment. These flow-in capitals are very important for some domestic enterprise. For example, there are huge numbers of small businesses in China. These enterprises are all at the beginning stage. As the market resources within a country are limited, they need other kinds of resources. The foreign investment is one of the major resources for them. The foreign investment actually changes the ownership behavior in an economic system. The foreign investment in production industry has direct impact over the livelihoods and production in one particular country. In some cases, the foreign investment is not only about capital. It is also about technology transfer and management under foreign control. With the new technology spread over the world, it inspires more people which result in innovation. The foreign control brings out the issue of managing locale people/worker with foreign style. This is a good practice that both sides are willing to gain experiences.

Corporate Governance

In general, the word corporate governance defines the relationship of the owners of the company and the mechanisms through which the owners affect the companyÐŽ¦s behavior (R Roulier 1997). A corporate governance system is system that focus on the creating the wealth by maximizing the economic efficiency of the corporation. The main party is the shareholder. As a director, the return for shareholders is always the one they concern the most. If we think deeper, we can see that the idea for corporate governance can be interpreted as the relationship between the internal control mechanism of the enterprise and the society understanding of corporate accountability (Justin OÐŽ¦Brien 2005). It takes more concerns about the interests of employees, creditors, environment and other parties that have connections with the corporationÐŽ¦s performance. It involves the process of operation, monitoring, management and internal control for a corporation.

Evidence (Stephen S Cohen and Gavin Boyd 2000) have shown that there are relationship between the corporate governance and the profit making. A well developed legal system is also an essential backbone for a corporation to operate.

Economic Globalization & Corporate Governance

In this part, I am going to demonstrate the relationship between Economic Globalization & Corporate Governance. In order to show the relationship and the evolution over years, I choose one special country to study ÐŽV The People Republic of China (PRC), a country that have the highest GDP last year. There are several reasons for me to choose China. It is the one that affected most by the globalization. This is a country with great potential. This is a country with strong economic background but believe in republicanism.

The evolutions of PRC Economy System

Under the Economic Globalization, there are great impacts on the PRC economy through out the recent 50 years. Reforms and evolutions are the results. Not just the reforms on economy but also the reform on mind set concerning the concept of managing a corporation in an effective way ÐŽV Study of Corporate Governance. LetÐŽ¦s start with the history.

In 1949, Mr. Mao Zedong announced the formation of People Republic of China. At the same year, all privately-owned enterprises in China were enforced to reform as state-owned enterprises. At that time, there is no corporation inside China. In 1978, the PRC government proposed an economic reform to re-construct their economy system from central-planned economy (The Soviet Model) to market economy. The main reason is: After the 10 year of Cultural Revolution, the China economic is too weak for the citizen to survive. The PRC Government would like to use the economic reform as a stepping stone to save their economy. It takes about 15 years for the reform to become mature. The most critical task of the reform is the problem of the State Own Enterprises. Most of these Enterprises recorded deficit at that time. The reform involves the process of corporatization of state-owned enterprises and it is a challenging task. The main problem is the cultural and ideological differences between state-own concept in China and the private own concept in the western world. The PRC government did not want to see any privatization in state-own enterprise which is a consequential result of corporatization. The reason is simple. During the process of corporatization, the state own properties will be transferred to the private owner. This action is against the party constitution of China and may disquiet the public. Leading by the Premier of the State Council, Mr. Zhu Rongji, the reform was finally undergo and success. The ownership for state own enterprise has been shift to the private sector. Nowadays, Over 50%

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