Requesting 200 words response to the following post using at least three substantive peer-reviewed scholarly journal articles (different than in the below post) to provide those substantive replies.
Key Term (market economic systems) and Interest Reasoning
Upon completing the reading for Chapter Three, The External Environment and Risk Inherent in Cross Border Commerce, the subsection explaining market economic systems was thought-provoking after learning about many of these nations with free-market economies are not truly free from government control. Due to the rules and regulations that organizations may have to follow. (Satterlee, 2018). Overall, when considering how businesses in the United States operate within a free market economy. I wish to understand other countries’ operations that also use the free-market system and how similar or dissimilar these economies are from one another.
Explanation of the Key Term
A market economy is also commonly known as a free-market or free-enterprise economy. In this system, the production of goods and services and the distribution are guided by the prices of a free-market rather than outlined control from the government (Satterlee, 2018). Generally, within the free-market system, all products and services are governed by supply and demand, making companies that operate within this system become highly competitive. (Satterlee, 2018). Companies that engage with this system understand the importance of producing high-quality products or services that customers desire to remain successful.
Although countries like the United States that have market economies are not truly free from government regulations. They have more freedoms from government interference when compared to centrally planned economies or mixed economies (Satterlee, 2018). Based on the success many organizations with the United States have enjoyed over the years. Many globally influential companies like Russia and China have transitioned from a centrally planned economy to a market economy focused on immense success (Satterlee, 2018).
Context, market economies, and MNEs: The example of financial incentivization
In this article, researchers wished to understand how market economies’ diversity led to positive outcomes for the economy and business outcomes, particularly the reward systems these institutions experience. The researchers recognize there are many variations between market economies and the interactions between multinational corporations and how they benefit from these market economies (Walker et al., 2018). Ultimately, the firms that operate within these systems have a centralized focus on the employer and the employees’ relationship. An example provided was that organizations within liberal market economies have an increased focus on shareholder value, but this creates a risk for employees if this focus leads to poor organizational performance (Walker et al., 2018).
The focus on increased shareholder value can also be closely related to how employees and managers are incentivized in liberal market economies. Typically providing managers with pay tied to share prices can be a positive motivator for these managers to increase the company’s value in the short term (Walker et al., 2018). In organizations within coordinated market economies, there is a focus on shareholders and employees, which emphasizes creating an organization that will prosper in the future rather than focusing on short-term goals (Walker et al., 2018).
According to the researcher’s, Multinational enterprises also play a crucial role in liberal market economies based on these firms’ ability to transfer organizational practices to these developed nations. When operating abroad, the lowered institutional restraints can help provide these firms with the ability to increase profits. Many of these multinational corporations’ ultimate goal is to maximize profits significantly, which may make incentive-based pay options more likely to drive performance than other methods (Walker et al., 2018).
Lastly, the researchers determined that high government tax rates were a crucial factor in whether firms decided to employ performance incentive-based pay. In Japan, organizations were using these incentive-based strategies based on seniority, which created a strong incentive for employees to remain loyal to organizations. For multinational enterprises, incentive-based pay can still be the standard for most firms. However, these corporations are less likely to be tied to domestic practices. The multinational enterprises can innovate and institute new incentive-based practices (Walker et al., 2018).
The main focus of companies who engage in business practices within a free-market economy is to increase profits for the organization. Managers understand to increase profits, they have to focus on many aspects of the firm, for those organizations involved in producing products for consumption. A method of increasing demand for products would constantly be innovating and developing superior products, leading to increased demand. However, creating performance-based incentives can be a positive short-term and long-term strategy if completed strategically.
Managers that understand their compensation is tied to shareholder profits have a motive to increase the overall organizational value. However, those companies that discover competitive advantages over their competition and continue to succeed. Not only do the managers benefit from the success, but the employees also do because they stayed employed with the company, and the continued success of the company, provides them with the opportunity to be promoted to a higher status.
Market economies can also provide organizations with the opportunities to explore global markets and sustain higher economic growth than they would with other markets. Usually, the more independent these firms’ strategies are from the centralized government, the more opportunities for growth and competition (Tang, 2019). In general, many state-owned enterprises may be inefficient based on the pressure to focus on a societal objective that may not align with the needs of the firm. Private owners typically have an incentive to monitor behavior that increases production and profits, while state-owned companies have to follow strict regulations that ultimately restrain the organization’s success (Mariotti & Marzano, 2019).
In certain countries, the opportunity for innovation will most likely lead to a higher competitive advantage. Institutions that focus on innovation usually avoid weak performance maintain more substantial economic growth when compared to those organizations bound to specific guidelines (Witt & Jackson, 2016). At the same time, no organization may be absolutely free from governmental regulations. Those governments with liberal approaches generally have stronger economies overall and more potential for future growth (Wright et al., 2021).