The Knowledge of the Essentiality of International Businesses Stakeholders - Research Paper Example

The concept of stakeholder, according to Freeman and Reed, was derived from an internal memorandum in Stanford Research Institute in 1963, in which it was purposefully defined as “… those groups without whose support the organization would cease to exist (1983, 89). Stakeholders were originally recognized as ‘shareholders, employees, customers, suppliers, lenders, and society’ (ibid, 89). The idea of corporate stakeholders has turned out to be generally accepted. Donaldson and Preston (1995) disclosed that roughly a dozen books and more than a hundred journal entries have been circulated on this notion conceptualized and popularized by Freeman (1983). Academicians and researchers have investigated Stakeholder theory from different points of view. There are those who explored the effect of stakeholders on the firm employing agency theory as their framework. There are those who study stakeholders from the perspective of corporate social responsibility as well as corporate social performance. There are those who persuasively suggest the application of network theory in order to fully grasp the influences that stakeholders have on a business organization. And there are those who just simply suggest a scheme of prioritizing stakeholders (Keijzers 2004). On the other hand, others have explored the appropriateness of stakeholder theory to clarify or support frameworks to improving international corporate performance. In that investigation approach, the application of stakeholder theory to build up international corporate-level strategy is a widespread perspective. Within international organizations, the role of stakeholder theory is believed to develop previous system of strategy, into the founding of international performance objectives (Stonehouse 2004). Some scholars have emphasized that the performance goals established by a manager of a multinational corporation are influenced by the demands of the organization’s stakeholders. This proposes that a course of action could be present within international organizations whereby stakeholder interests are acknowledged and integrated as primary components in the creation and growth of performance goals (ibid, 99). There has been significant interest in previous years in stakeholder theory at the global corporate level in international organizations. The idea that stakeholder interests are primary strategic assets of an international organization that might result in the creation and growth of global corporate performance goals is widely recognized in the management literature. While the available literature on the subject matter has explored these issues mainly at the corporate level, the argument of this paper is that the stakeholder theory can be successfully applied at the international business level to establish global performance goals. Applying this framework at the global level would facilitate for both the integration of the stakeholders at a global organizational level, or vertical top-down, and the interests of other tasks such as those assigned to marketing or accounting and any other components of international business organization that have a vested interests in it. I. Background and Overview International managers and consultants have traditionally recognized that the wide-ranging context in which international organizations discover themselves has a significant impact on the management, operations and effectiveness of those international organizations. Throughout the decades, the context of international business has been perceived and described in several ways. The context has been deliberated in relation to sub-contexts, such as economic, political, social and recently technological. It has as well been deliberated in relation to macro and micro units and strategic and functioning units, in addition to other concepts (Woodside 1996). In a primary perspective, stakeholder theory opened up yet another means to think about the context of international organizations. Stakeholder theory, or sometimes referred to as the stakeholder concept, illustrates particular individuals and/ or organizations in the international business context as not merely being several sub-contexts, publics or communities with which the global organization should work together to be successful, but somehow as individuals or organizations who have specific stakes or investments in the international venture. When perceived in this manner, these stakeholders, similar to the owners or shareholders of the global enterprise, have to a certain extent some crucial investments in the continuing operations and objectives of the international business venture, and, hence, should be considered more as if they were a fundamental fragment of the organization rather than outside constituencies (Johnson 2003). Understanding the stakeholder theory to international business demands a deliberation of at least the following concerns. What is the definition of a stake and an international stakeholder? Who are international businesses’ stakeholders? A. What is the definition of Stake and an International Stakeholder? To better appreciate the notion of international stakeholders, it is valuable to understand first the notion of a stake. In conventional perspectives of management, the elite stakeholder appears to be the ‘shareholder-owner or investor group’ (Johnson 2003, 106). Their stake is in a sense financial since they financially sustain the firm. In the stakeholder perspective, the concept of an investment of an individual or of a group in the firm is seen more generally. A stake “is an interest in or a share in an undertaking” (ibid, 106). A stake can also be regarded as a claim. A claim “is an assertion to a right to something” (Kline 2005, 152). Also, a claim can be viewed as a “demand for something due or believed to be due, or owed” (ibid, 153). The notion of a stake hence can range from basically a vested interest in an operation at one extreme to a lawful claim of ownership at the other end. In the middle of these two ends are several other claims to a privilege to something. This privilege could be an official privilege to particular dealings rather than a rightful claim of ownership such as that possessed by a shareholder. Instances of official privileges involve those possessed by employees or customers on the basis of a contract or law. Employees have lawful rights on the basis of the contract they agreed upon and they have particular privileges that are safeguarded by law such as minimum wage, unbiased employment policies and security. Consumers have lawful rights on the basis of product/ service warranties and as well as on the law (Kline 2005). Provided with this discussion of what makes up a stake, how could then we define an international stakeholder? An international stakeholder is an individual or perhaps a group that declares to have one or more of the several types of stakes aforementioned. Just as international stakeholders can be affected by the decisions, actions, practices of an international business enterprise, these stakeholders as well can affect the international business’ decisions, actions and practices. B. Who are the international businesses’ stakeholders? In the current global business environment, there are several individuals and groups who are international business’s stakeholders. From the perspective of international business, there are particular individuals and groups that have authority and influence in the point of view of the management; specifically, that they possess a rightful vested interest in or claim on the global operations or practices of the international business enterprise. The most evident of these businesses’ stakeholders are shareholders, employees and customers. From the perspective of international competitive strategy, global competitors could be inserted to this list, and from the knothole of strategic partnerships, international suppliers could be appended. Taking into account the decisively pluralistic society that distinguishes the modern global business context stakeholders could include not merely these mentioned groups, but others too, such as the international community, the governments, the media, societies, or special international interests groups (Mourdoukoutas 1999). It has as well been firmly maintained that the natural environment should be taken into account as one of the global businesses’ stakeholders. In other words, any individual or group, and perhaps the natural environment, might be considered as an international stakeholder, and hence it is indispensable to formulate a means through which international managers or consultants could organize, mobilize or classify international stakeholders with regard to their natures and priorities (ibid, 118). II. On the Measurement of Global Manufacturing Performance Just when many have thought that they have completely understood the ‘performance’ construct, they are flooded with e-business firms with distinctive business frameworks and fascinatingly high global market capitalizations. Such transformations have provided reasons for many to think twice about how they value these multinational companies (Johnson 2003). Could the high global market capitalizations have originated from the application of badly chosen performance evaluations? What are appropriate evaluations of performance for the emerging global firms? Concerns are being articulated regarding the suitability of present evaluations of performance at all levels within an international organization. The contemporary interest in the performance construct is vigorous and dynamic and it underlines the crucial task of performance measurement schemes in sustaining the competitive status of an international business organization. As Skinner precisely claims, “The reason to invest in a factory is not to have an efficient production facility or even a ‘world-class’ plant. It is to create competitive advantage” (1996, 23). The role of performance evaluation mechanisms is well documented in management literature. It is also common knowledge in management that the role of manufacturing considerably contributes to the creation and sustenance of an international organization’s competitive status. Scholars acknowledge that global manufacturing performance evaluation systems should embody manufacturing’s input to the general competitive status of the international organization, and that conventional measures such as ‘machine-utilization, labour efficiency, and overhead rate’ may not be sufficient or suitable as key measures of the input of manufacturing (Mudambi 1998). Goldratt (1990) emphasizes that the ‘cost-based’ models to the evaluation of performance could push managers to make flawed decisions and actions. Nevertheless, the process of transformation is gradual and has merely begun. In a latest work, Skinner expressed grieve “… The tendency to persist in the old tradition, clinging to a century old premise of what defines good performance even after twenty-five years of painful results, suggests that the new rules of competition are not yet broadly understood” (1996, 22). Fraction of this is due to the current expanded venture is considerably dissimilar from the hierarchically structured and domestically oriented manufacturing organization of the seventies and the eighties (Mudambi 1998). The shift to more apt measures evidently demands a major transition in the disposition of managers and scholars alike. Some development is being initiated in the path proposed by Skinner (1996). Scholars have put forth various models to determine appropriate international businesses’ performance evaluations. These models characteristically demonstrate the viewpoint of different disciplines such as industrial engineering and accounting, or show the strategic standpoint that international businesses’ performance evaluations should be in line with global objectives. Several of the latest models have suggested an acknowledgement of both financial and nonfinancial appraisals occasionally referred to as ‘balanced scorecard’ (Woodside 1996, 127); Vokurka and Fliedner (1995) claim that financial appraisals are inclined to show the outcome of previous decisions and actions whereas nonfinancial evaluations are the producers of prospective performance of the international business organization. In spite current investigative attempts, no suggestive and extensive approach is present to assist managers develop relevant international businesses’ performance evaluations. Maybe it is time to tag along to the suggestion of Amundson (1998) to venture outside the manufacturing area for assumption that could guide management to design measures of international businesses’ performance goals flexibility. Donaldson and Preston (1995) suggested four fundamental principles that should exist if a stakeholder theory is to be relevant in an international organizational context. It is important to establish the relevance of stakeholder theory for the naming of international manufacturing performance evaluations through applying the four principles proposed by Donaldson and Preston (1995). Then it is essential to weigh the stakeholder theory with two conventional methods of determining performance evaluations. Employed at the global manufacturing level within an international organization, Donaldson and Preston’s four principles propose that stakeholder approach is relevant if it sustains in opposition to the following criteria: Descriptive Accuracy: Does it embody a feasible international business framework? Can the stakeholder assumption be used to illustrate the connection between the international manufacturing role and its stakeholders? Instrumental Power: Does it set up a model for assessing the connection between the practice of the stakeholder management and the accomplishment of several manufacturing performance objectives? Normative Validity: Do stakeholders have rightful interests in the role of manufacturing and do those interests warrant deliberation for their personal sake, separate from other interests? Managerial Implications: Does it suggest outlooks, systems, and traditions that united make up management of the interests of stakeholders? I personally take the standpoint that the stakeholder framework is relevant for the progress of global manufacturing performance evaluations only if every principle formulated by Donaldson and Preston (1995) can be demonstrated to be applicable at the global manufacturing level. III. The New Multinational Stakeholders Five of the most relevant new multinational stakeholders and their primary concerns are an appropriate inclusion to this discourse. A. Non-Governmental Organizations (NGOs) NGOs such as Amnesty International and Human Rights Watch have initiated movements that aim at the operations of oil and mining firms exploiting disorderly regions of the globe. Other organizations, such as the National Labour Committee and United Students against Sweatshops have focused on the footwear and apparel businesses for the exploitative and oppressive circumstances in off-shore factories wherein their products are manufactured (Bomann 2004). A number of NGOs have put their energies on protecting the cultural rights of the indigenous peoples. The Rainforest Action Network which carried out a seven-year movement against oil expansion in a secluded region of Colombia targeted the operations of an oil, gas and chemical company in U.S. the Occidental Petroleum Corporation. While investigations demonstrate that NGOs are regarded as more responsible and truthful in Europe than in the Unites States, even NGOs in the United States are now believed to be the most dependable source globally for reliable and valid information on human rights, health concerns, and the environment (ibid, 74). B. Consumers Consumers fulfil a growingly crucial function in generating incentives for multinational corporations to enhance the social influence and effect of their operations. According to the latest report of the Cone/ Roper Research, “Americans, in their roles as consumers, employees, customers, and community members are consistent in their expectation that companies must help solve social issues. More than eight in ten American consumers report having a more positive image of companies who support a cause they care about, and 94% of Influential Americans report having a more positive image of such companies” (Kline 2005, 102). Consumers all over the world are increasingly becoming aware of the global business environment and determined in promoting the idea that international businesses should not only focus their energies in generating profits and creating jobs but also in helping build a better society. C. Socially Responsible Investor As investors who vote with their savings and pensions increase, companies will have to confront growing population of fund managers on issues such as human rights, working conditions, community development and the environment. The forum on social investment claims that trillion dollars in the recent years was invested in funds that are classified as socially responsible, and the funds are continuously increasing. This pattern shows no indication of declining (Bomann 2004). D. The Student Movement In merely a few years of presence in the international scene, the United Students against Sweatshops, a national alliance of college undergraduates, has turned out to be a key force in the movement against sweatshops. Student protesters and activists will carry on shaking campuses all over the world demanding an increase in minimum wage, and other economic and social privileges for the indigents (Bomann 2004). IV. Conclusions Stakeholder theory is elaborated by Donaldson and Preston (1995) as made up of four principles. Their analysis establishes that the linkage between the international businesses’ operations and its stakeholders addresses the four principles. I therefore conclude that a model founded on stakeholder theory is, by first instance, a relevant alternative approach for the task of determining international businesses’ performance evaluations. Nevertheless, there is no substantiation in the literature of the structural application of a stakeholder approach to develop international businesses’ performance evaluations. Hence, there is a present possibility of prospective supplementary importance and ideas that can be acquired from the formulation of an integrated approach based on stakeholder theory. The fundamental argument put forth in this paper is that stakeholder theory must offer a justification for the naming of relevant measures of international businesses’ manufacturing performance. Further research, nonetheless, is indispensable to completely verify such claims. Apparently, the theoretical framework requires improvement. Attempts at improving the model must concentrate on determining primary stakeholders of the international businesses’ operations, identifying the character of the stakeholder relationships, and determining international businesses’ performance factors that best demonstrate those relationships. The pinpointing of primary stakeholders is a vital step in the formulation of a relevant approach. Global companies function in a resource-limited environment, and the thrust to upgrade the profit generation process demands well thought-out decisions about allocation of resources aimed at gratifying stakeholder requirements and demands. International businesses operate in a persistently shifting context. What effect would this have on the comparative degree of prioritization of the global businesses’ stakeholders? How possible is it that we will witness considerable systematic or unsystematic transition in the degree of prioritization of global businesses’ stakeholders? What are the repercussions for the approaches of managing this constantly changing set of important global businesses’ stakeholders? What mechanisms should be in operation to identify such changes? These are significant issues to which both managers and scholars would seek to address. The knowledge of the essentiality of international businesses’ stakeholders creates another perplexing concern for the global performance goals. How should international businesses deal with difficult and demanding stakeholders, primarily if they are classified in the main pool? Freeman and Reed remind us that “the stakeholder notion is indeed a deceptively simple one” (1983, 89). Nevertheless, a torrent of investigation and research comparable to the one proposed a while ago can potentially produce numerous contributions to both managers and researchers. If it is indeed a fact that “what gets measure is what gets done,” then it is essential that researchers design relevant global performance evaluations that reflect the requirements and demands of not merely international businesses’ operations, but also that of its stakeholders. It is becoming apparent that stakeholder theory, notions, management, evaluation, and deliberation are turning out to be the basics to managers and consultants of contemporary international businesses in the new millennium. There is developing support for the idea that the stakeholder theory is increasingly turning out to be the most appropriate and helpful for descriptive and instrumental purposes. By now the medium of stakeholder theory has greatly influenced the world of organizations as progressively more managers and scholars see the importance of establishing and recommending in stakeholder terms. References Amundson, S. D. (1998) "Relationships Between Theory-driven Empirical Research in Operations Management and Other Disciplines." Journal of Operations Management 16(4): 341-361. Bomann, L. (2004) Responsibility in World Business: Managing Harmful Side-Effects of Corporate Activity. Tokyo: United Nations University Press. Donaldson, T. and L. E. Preston. (1995) "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications." Academy of Management Review 20(1): 65-91. Farmer, R. N. (1966) International Business: An Operational Theory. Homewood, IL: Richard D. Irwin. Freeman, R. E. (1983) Strategic Management: A Stakeholder Approach. Boston, MA: Pitman. Goldratt, E. M. (1990) The Haystack Syndrome. Croton-on-Hudson, NY: North River Press. Johnson, D. 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