Economic Globalization and Corporate Governance

Economic Globalization

According to (Held and McGrew 1999: 2), the word Globalization means Ў§ЎKa 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 companyЎ¦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 OЎ¦Brien 2005). It takes more concerns about the interests of employees, creditors, environment and other parties that have connections with the corporationЎ¦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 ЎV 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