International Business and Institutional Change

Masao Nakamura

doi:10.4172/2167-0234.1000e107

Abstract

As an example of the latter sort of risk, consider the new business environments in Iraq and Afghanistan. Both of these countries are experiencing the departure of U.S. and other Western military forces. Resulting uncertainties include the unknown degree of Western democracy and customs that may remain after the Western military forces leave. Yet these countries are of considerable IB interest to Western firms, despite the risk, because of potentially high economic growth. These business risks combine political, economic, cultural and other types of risks. These risks might be compared to those experienced by Western firms when the Germany ceased to be divided by the Berlin Wall, or when the Soviet Union collapsed. Even though many Western firms thought they knew those countries, few were able to predict the timing and speed of the fall of the Berlin Wall or the collapse of the Soviet empire. Of course, institutional changes that affect IB can occur in Western countries as well. For example, Japan’s corporate governance (CG) reforms, which began in the mid 1990s and were intended to transform that country’s inward-looking, bank-based CG system into a more market-based, transparent U.S. style CG system, has resulted in a mixed bag of actual CG changes. By now most U.S.-style CG institutional arrangements are allowed. So, a Japanese corporation potentially can run their management on an entirely U.S. style CG system driven by shareholder value maximization.

Highlights

While new transparency and disclosure practices have been implemented and the degree of enforcement is surely tougher than before, there is still a distance in this regard between Japanese versus U.S and other Western countries’ enforcement practices
One of the main differences between domestic and international business is that international business (IB) comes with various risks that domestic business (DB) does not share
Examples of IB risks include the exchange rate risk, country-specific culture risk and political risk. Another IB risk encompassing a broad spectrum of uncertainties is the risks associated with an institutional change in a foreign country where IB investments have been made

Summary

Introduction

While new transparency and disclosure practices have been implemented and the degree of enforcement is surely tougher than before, there is still a distance in this regard between Japanese versus U.S and other Western countries’ enforcement practices.

Results

Conclusion