Managing stakeholder interests in international business relationships

Stakeholders International Business

The business world has seen many evolutions over the centuries. One constant, however, remains that the central premise of business has always been to provide in a perceived need; whether this need has been somewhat created and artificially perceived, or manifests itself as an actual need. Businesses have also always had stakeholders. The way in which businesses have managed their relationships with stakeholders have, however, also significantly evolved. During the industrial age, particularly, businesses were so focused on profit and speed of service that they tended to neglect their internal stakeholders in favor of the external ones. Externally, they tended to also favor those who could directly benefit the business over those who were directly affected by their practices. Today, business ethics are at the heart of many stakeholder relationships. One of the most significant evolutions the world of business has seen since the industrial age is globalization. This phenomenon brought with it a range of new ethical issues and types of stakeholders to consider. To survive in the competitive global business world of today, it has become vital for businesses today to define and take into account the needs of their internal and external stakeholders in terms of influence and business ethics.

In a general definition of the concept of stakeholders, Mullins (2010, p. 714) notes that this is any person or group of individuals with an interest in a business or are affected in some way by its goals, operations, or activities, or by the behavior of its members. It is therefore important for a business to clearly define the types of stakeholders that might be influenced by its existence and to determine ways in which to manage these relationships in both an influencial and ethical way. In the global arena, this has become particularly important, since there are now more stakeholders than ever before as a result of the sheer number of individuals and groups being affected by the practices and behaviors of businesses both on their home turf and internationally.

In defining the importance of these stakeholders, Johnson and Scholes (1993, p. 175) identified three aspects according to which the strategic manager would need to make judgments regarding stakeholder relations. The first of these is the likelihood of and level to which each stakeholder individual or group to impress its expectations on the company. This relates to stakeholder influence, which might be at a high or low level. An example of this could be a cultural group in China who might object to the manufacture of a certain product because of its perceived threat to local customs. Related to this is whether the group in question has the means of impressing its influence, and finally the likelihood of the current stakeholder expectations on future strategy. In the China situation, the company might need to consider product modification to more closely adhere to the local stakeholder requirement.

As mentioned, these considerations focus around the influence and power of stakeholders. According to Johnson and Scholes (1993, p. 176), influence can be derived from various sources, and can be exerted by various parties within the business relationship, including managers and stakeholders. From the management viewpoint, for example, influence can be a source of power emerging from the personal qualities of individual leaders. In groups, influence derives from a high level of consensus among several individuals in a group. In this way, a manager can use his or her personal influence to shape the consensus level of groups within the company to further the specific strategy of the company. Hence, companies can influence their stakeholders by means of persuading them to buy products, for example, or to maintain a sense of goodwill towards the company and influence others to invest in its products and services.

Stakeholders might exert their influence over a company, in turn, by means of various sources of power (Johnson and Scholes, 1993, p. 179). These include resource dependence, involvement in implementation, knowledge and skills critical to the company, and internal links to the company.

According to the authors, the importance of resource dependence is common among stakeholders who hold power that they can exert over companies. This is the ability of stakeholders to influence the provision or acquisition of resources. Involvement in implementation frequently requires a strong knowledge of customer requirements, which often dictates not only manufacturing, but also distribution. This means that manufacturing and distribution companies can influence each other, while the environment of operation influences both. Knowledge and skills are an important stakeholder component that might influence the success of a company. In an international environment, this is particularly important, since integrating with a new society and new culture will require considerable knowledge and skills regarding the perceived and real needs of the environment and how to fill these profitably. Also, knowledge and skills from the new environment should be wisely recruited to maximize the effectiveness of the company in terms of costs, operations, and profitability. Internal links, the final component, mean that external stakeholders may have channels along which they can influence the strategic management of the company. In a foreign environment, this can once again be useful, especially when interacting with the external environment in terms of regulations and business laws. By interacting with external stakeholders, the company can ensure its continued good relationship with the authorities of an environment where the company might not be well versed in the intricacies of the local law and culture.

With these considerations, then, stakeholders can be classified into various categories, which would also facilitate a company's more specific interactions with them. According to Greenley (1989, p. 153), stakeholders can be classified into groups of internal, marketplace, and external. Internal stakeholders are, for example, the owners, decision-makers, unions, and employees of the organization. Marketplace stakeholders include customers, competitors, and suppliers, while external stakeholders include the government, political groups, the financial community, and trade associations. When interacting with these various stakeholders and their often divergent interests, it is important to maintain a particular ethical basis. This is particularly important in the global arena.