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OUM BUSINESS SCHOOL

SEMESTER JANUARY 2015

BBCG 3103

INTERNATIONALIZATION

NAME : TEO SEH GUAN

MATRICS NUMBER : RF 147257003

NO. KAD PENGENALAN : RF 147257

TELEPHONE NUMBER : 013 - 8977369

E-MAIL : teosehguan @ oum.edu.my

LEARNING CENTRE : OUM KOTA KINABALU

TABLE OF CONTENT PAGE


BBCG3103 INTERNATIONALIZATION

1 INTRODUCTION : INTERNATIONALIZATION

2 AUTO FRICTION MANUFACTURING SDN BHD 3-4

3 INTERNATIONALIZATION 5-13

4 THE FIRST IMPORTANCE OF CORPORATE GOVERNANCE 14-15

5 THE SECOND IMPORTANCE OF CORPORATE GOVERNANCE 16-17

6 SUMMARY 18

7 REFERENCE 19

1 INTRODUCTION : INTERNATIONALIZATION

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It is defined as the process of extending the business activities from domestic to any
foreign country with an intention of targeting international customers, It is also defined as
the conduction of business activities by any company across the nations. It can also be
defined as the expansion of business functions to various countries with an objective of
fulfilling the needs and wants of international customers.

) IB field is concerned with the issues facing international companies and


governments in dealing with all types of crossborder transactions. 2) IB
involves all business transactions that involve two or more countries. 3) IB
consists of transactions that are devised and carried out across borders to
satisfy the objectives of individuals and organizations. 4) IB consists of those
activities private and public enterprises that involve the movement across
national boundaries of goods and services, resources, knowledge or skills.

In Malaysia, many local firms have developed very successfully by adapting to an


interdependent and global market. Behind some of the success stories, four explanatory
factors are found: visionary leadership, a friendly business climate, a commitment to
education and a spirit of collaboration between businesses and the local government
(Kanter, 1995). Kanter emphasizes that the mindset of business and community leaders
are most important for a positive development it may thus be argued that it is cognitive
phenomena that distinguish cosmopolitans with a global mindset and global connections
and locals who are stuck in one place. Certainly there are firms, large and small, led by
cosmopolitan leaders open to international relations while others led by local patriots
perceive international relations as something foreign and risky. Much is determined by the
mindset of the leader and it may appear as if firms responses to globalization depend on
having a global and internationally oriented mindset or not.

1.1 EXAMPLES OF THE ORGANISATION IN MALAYSIA

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Auto Friction Manufacturing Sdn. Bhd ItraMAS Corporation

RNZ Integrated Sdn. Bhd Asturi Metal Builders (M) Sdn. Bhd

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2 INTRODUCTION : AUTO FRICTION MANUFACTURING SDN BHD

Auto Friction Manufacturing Sdn Bhd is found by Mr. Chong Fah Ming and established
in 1997. As the population of the world continues to increase, naturally there would be an
increasing demand to automobiles and this pushes up the requirement for advanced
braking systems. New and strict regulations are always drafted to ensure that maximum
safety is met and this would lead to advancement of new technologies.

To keep up with this increasing demand, local manufacturer Auto Friction Manufacturing,
the manufacturer of AFI Brakes products, started off with the production of disc brake
pads and shoes for the automotive industry, with its headquarters located in the Malaysias
East Coast state of Terengganu. They are responsible for every single step of the
production of their brake pads, from the making of moulds, metal stamping, material
formulation, packing to research and development. In order to produce finer quality
products, they are also continuously updating their technology. Besides manufacturing
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their own products under their brand names, they were also provided customers brand
manufacturing service.

Stamping Department

To date, their products are produced


according to stringent ISO 9001
management system to guarantee its clients
the best quality on high performance
driving and also offers design
formulation to suit its clients requirements.
Their integrated manufacturing plant also allows them to perform customization and
could be tailor made according to demands; due to its designing technology and machine
capability, all located in one central location.

They received the Golden Bull Award 2011, the award that recognizes Malaysia 100
outstanding SMEs and in 2015, their product quality as successfully earned them the
SIRIM product certification MS 1164: 2005 as well as world recognized E-Mark
certification (E11).

Coordinated marketing, product R&D, plus after sales services are keys to their success.
They have also gained the reputation for their innovative ideas. All these contribute to
AFIs good name in both the domestic and international markets.

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3 INTERNATIONALIZATION

The company recently launched a range of disc brake pads and shoes made from
environmentally friendly bio-soluble fibre. This new range of product has received the
approval of American Society of Automotive Equipment as well as the Japanese Industrial
Standards as these products were made completely free from asbestos, a common
component in brake pads which is dangerous to health and the environment.

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Their braking solution is produced for a variety of leading automotive manufacturers from
Europe which includes Mercedes Benz, Volvo, BMW, Volkswagen, Citroen, Renault,
Peugeot, Audi just to name a few. The company began their operation in 1995 to serve
Japanese car manufacturers such as Toyota, Nissan, Mitsubishi, Honda, Mazda and others
before branching into local manufacturers such as Proton, Perodua, Naza and Inokom in
Malaysia. They also service Chery of China as well as Daewoo, Hyundai, Kia and
SsangYong from Korea.

In recognition of their outstanding work quality, the company has been recently awarded
the title Asia Pacific Super Excellent Brand Awards from the Asia Entrepreneur Alliance
Worldwide and this was followed by the Golden Bull and subsequently Enterprise 50
Award. With this recognition, its objective now is focused to maintain quality output and
to spread out its wings by tapping into the huge potential of the export market.

2.0 CORPORATE GOVERNANCE

2.1 UNITED KINGDOM (UK) CORPORATE GOVERNANCE CODES

Corporate governance in the UK started in the early 1990s. The corporate collapses of the
BCCI bank and the Robert Maxwell pension fund turned the attention of many towards
corporate governance issues. Since then, many initiatives, including the introduction of
the code of corporate governance, have been taken to ensure proper governance of
companies. To monitor the development of the corporate governance code in the UK, the
Financial Reporting Council (FRC) was established.

After several revisions, the current code of corporate governance for UK was created,
which is, the UK Corporate Governance Code (2010). This code applies to accounting
periods beginning on or after 29 June 2010.

This code applies the comply or explain approach. This approach requires companies to
comply with the rules and recommendations, otherwise, they need to explain their non-
compliance. It consists of principles (main and supporting) and provisions.

The five main principles of the code and the supporting principles for each main
principles:

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LEADERSHIP
a The Role of the Board
Every company should be headed by an effective board which is collectively
responsible for the long-term success of the company.
b Division of Responsibilities
There should be a clear of responsibilities at the head of the company between
the running of the board and the executive responsibility for the running of the
companys business. No one individual should have unfettered powers of
decision.

c The Chairman
The chairman is responsible for leadership of the board and ensuring the
effectiveness on all aspects of its role.
d Non-Executive Directors
As part of their role as members of a unitary board, non-executive directors
should constructively challenge and help develop proposals on strategy.

EFFECTIVENESS
a The Composition of the Board
The board and its committees should have the appropriate balance of skills,
experience, independence and knowledge of the company to enable them to
discharge their respective duties and responsibilities effectively.
b Appointments to the Board
There should be a formal, rigorous and transparent procedure for the
appointment of new directors to the board.
c Commitment
All directors should be able to allocate sufficient time to the company to
discharge their responsibilities effectively.
d Development
All directors should receive induction on joining the board and should
regularly update and refresh their skills and knowledge.
e Information and Support
The board should be supplied in a timely manner with information in a form
and of a quality appropriate to enable it to discharge its duties.
f Evaluation
The board should undertake a formal and rigorous annual evaluation of its own
performance and that of its committees and individual directors.

g Re-election
All directors should be submitted for re-election at regular intervals, subject to
continued satisfactory performance.
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ACCOUNTABILITY
a Financial and Business Reporting
The board should present a balanced and understandable assessment of the
companys position and prospects.
b Risk Management and Internal Control
The board is responsible for determining the nature and extend of the
significant risks it is willing to take in achieving its strategic objectives. The
board should maintain sound risk management and internal control systems.
c Audit Committee and Auditors
The board should establish formal and transparent arrangements for
considering how they should apply the corporate reporting and risk
management and internal control principles and for maintaining an appropriate
relationship with the companys auditors.

REMUNERATION
a The Level and Components of Remuneration
Levels of remuneration should be sufficient to attract, retain and motivate
directors of the quality required to run the company successfully, but a
company should avoid paying more than is necessary for this purpose. A
significant proportion of executive directors remuneration should be
structured so as to link rewards to corporate and individual performance.

b Procedure
There should be a formal and transparent procedure for developing policy on
executive remuneration and for fixing the remuneration packages of individual
directors. No director should be involved in deciding his or her own
remuneration.

RELATIONS WITH SHAREHOLDERS


a Dialogue with Shareholders
There should be a dialogue with shareholders based on the mutual
understanding of objectives. The board as a whole has responsibility for
ensuring that a satisfactory dialogue with shareholders takes place.
b Constructive use of the AGM
The board should use the AGM to communicate with investors and to
encourage their participation.

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2.2 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT


(OECD)
The Organisation and Economic Co-operation and Development (OECD) was established
to promote policies that will improve the economic and social well-being of people
around the world. The organisation celebrated its 50th anniversary in 2011, with a current
membership of 34 countries worldwide.
One of the policies in the OECD Principles of Corporate Governance, which as published
in 2005. The code outlines six major principles:

i Ensuring the Basis for an Effective Corporate Governance Framework


The corporate governance framework should promote transparent and efficient
markets, be consistent with the rule of law and clearly articulate the division of
responsibilities among different supervisory, regulatory and enforcement
authorities.

ii The Rights of Shareholders and Key Ownership Functions


The corporate governance framework should protect and facilitate the exercise of
shareholders rights.

iii The Equitable Treatment of Shareholders


The corporate governance framework should ensure the equitable treatment of all
shareholders, including minority and foreign shareholders. All shareholders should
have the opportunity to obtain effective redress for violation of their rights.

iv The Role of Stakeholders in Corporate Governance


The corporate governance framework should recognize the rights of stakeholders
established by law or through mutual agreements and encourage active
cooperation between corporations and stakeholders in creating wealth, jobs and
the sustainability of financially sound enterprises.

v Disclosure and Transparency


The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matters regarding the corporation, including the
financial situation, performance, ownership and governance of the company.

vi The Responsibilities of the Board


The corporate governance framework should ensure the strategic guidance of the
company, the effective monitoring of management by the board, and the boards
accountability to the company and the shareholders.

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2.3 SARBANES-OXLEY ACT 2002

The Sarbanes-Oxley Act 2002 was enacted by the Senate and House of Representatives of
the United States of America. The purpose of this law is to protect investors by improving
the accuracy and reliability of corporate disclosure made pursuant to the securities laws as
well as for other purposes.

The following is the list of the 11 titles and its sub-sections as outlined by the Sarbanes-Oxley Act
2002:

i Title 1: PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD


a Section 101: Establishment, administration provisions.
b Section 102: Registration with the Board.
c Section 103: Auditing, quality control, and independence standards and rules.
d Section 104: Inspections of registered public accounting firms.
e Section 105: Investigations and disciplinary proceedings.
f Section 106: Foreign public accounting firms.
g Section 107: Commission oversight of the Board.
h Section 108: Accounting standards
i Section 109: Funding.

ii Title 2: AUDITOR INDEPENDENCE


a Section 201: Services outside the scope of practice of auditors.
b Section 202: Preapproval requirements.
c Section 203: Audit partner rotation.
d Section 204: Auditors reports to audit committees.
e Section 205: Conforming amendments.
f Section 206: Conflicts of interest.
g Section 207: Study of mandatory rotation of registered public accounting firms.
h Section 208: Commission authority.
i Section 209: Considerations by appropriate State regulatory authorities.
iii Title 3: CORPORATE RESPONSIBILTY
a Section 301: Public company audit committees.
b Section 302: Corporate responsibility for financial reports.
c Section 303: Improper influence on conduct of audits.
d Section 304: Forfeiture of certain bonuses and profits.
e Section 305: Officers and director bars and penalties.
f Section 306: Insider trades during pension fund blackout periods.
g Section 307: Rules of professional responsibility for attorneys.
h Section 308: Fair funds for investors.

iv Title 4: ENHANCED FINANCIAL DISCLOSURES


a Section 401: Disclosure in periodic reports.
b Section 402: Enhanced conflict of interest provisions.

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c Section 403: Disclosures of transactions involving management and principal stock-


holders.
d Section 404: Management assessment of internal controls.
e Section 405: Exemption.
f Section 406: Code of ethics for senior financial officers.
g Section 407: Disclosure of audit committee financial expert.
h Section 408: Enhances review of periodic disclosures by issuers.
i Section 409: Real time issuer disclosures.

v Title 5: ANALYST CONFLICTS OF INTEREST


a Section 501: Treatment of securities analysts by registered securities associations and
national securities exchanges.

vi Title 6: COMMISSION RESOURCES AND AUTHORITY


a Section 601: Authorisation of appropriations.
b Section 602: Appearance and practice before the Commission.
c Section 603: Federal court authority to impose penny stock bars.
d Section 604: Qualifications of associated persons of brokers and dealers.

vii Title 7: STUDIES AND REPORTS


a Section 701: GAO study and report regarding consolidation of public accounting firms.
b Section 702: Commission study and report regarding credit rating agencies.
c Section 703: Study and report on violators and violations.
d Section 704: Study of enforcement actions.
e Section 705: Study on investment banks.

viii Title 8: CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY


a Section 801: Short title.
b Section 802: Criminal penalties for altering documents.
c Section 803: Debts non-dischargeable if incurred in violation of securities fraud laws.
d Section 804: Statute of limitations for securities frauds.
e Section 805: Review of Federal Sentencing Guidelines for obstruction of justice and
extensive criminal of fraud.
f Section 806: Protection for employees of publicly traded companies who provide
evidence of fraud.
g Section 807: Criminal penalties for defrauding shareholders of publicly traded companies.

ix Title 9: WHITE-COLLAR CRIME PENALTY ENHANCEMENTS


a Section 901: Short title.
b Section 902: Attempts and conspiracies to commit criminal fraud offenses.
c Section 903: Criminal penalties for mail and wire fraud.
d Section 904: Criminal penalties for violations of the Employee Retirement Income
Security Act of 1974.
e Section 905: Amendment to sentencing guidelines relating to certain white-collar
offenses.
f Section 906: Corporate responsibility for financial reports.

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x Title 10: CORPORATE TAX RETURNS


a Section 1001: Sense of the Senate regarding the signing of corporate tax returns by chief
executive officers.

xi Title 11: CORPORATE FRAUD AND ACCOUNTABILITY


a Section 1101: Short title.
b Section 1102: Tempering with a record or otherwise impeding an official proceeding.
c Section 1103: Temporary freeze authority for the Securities and Exchange Commission.
d Section 1104: Amendment to the Federal Sentencing Guidelines.
e Section 1105: Authority of the Commission to prohibit persons from serving as officers or
directors.
f Section 1106: Increasing criminal penalties under Securities Exchange Act of 1934.
g Section 1107: Retaliation against informants traded companies.

3.0 THE FIRST IMPORTANCE OF CORPORATE GOVERNANCE

Throughout the years, Nestl [Malaysia] Berhad and its Board of Directors has been
resolute in ensuring that the Groups business and affairs are in strict adherence to the
doctrine and principles of good corporate governance such as integrity, transparency,
accountability and responsible business conduct.

Having good corporate governance is widely recognised as an essential attribute to attract


investment in competitive companies and efficient financial markets. It instils confidence
and trust in companies and financial markets, it instils confidence and trust in companies
and financial markets which would attract the inflow of foreign direct investment in a
country.

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In Asian countries, the interest in corporate governance has been stepped up in the late
1990s. Subsequent to the outbreak of the Asian currency crisis in 1997, the flow of
capital from foreign investors had suddenly been dried up, leading to intense liquidity
problems in local capital markets and real impact in the economy due to insufficient
capital.

The promotion of good governance serves two important purposes in the development of
local and regional capital markets. First, local equity markets play an important role
amidst the lack of foreign capital. Good corporate governance promotes the development
of local equity market, and reduces the reliance in foreign debts. Second, institutional
investors represent the majority type of foreign investors. Improved corporate governance
provides a higher level of investor confidence from international investors, and increases
the stability of local equity and other capital markets.

There are numerous benefits of good governance are to the Asian corporate setting. The
most significant value is the reassurance of investor confidence, especially for foreign
institutional investors. In the long run, good governance leads to the stability of local
capital markets development since foreign capital becomes more patient.

Studies have stressed several factors that contribute to an environment that nurtures good
governance. The factors that contributes good governance practices includes law that
define and protect private property rights, laws that protect and enforce contractual rights,
such as contracts between lenders and borrowers, laws that protect against fraud and
unfair and deceptive trade practices, centralized banking laws, bankruptcy laws, and a
competent, ethical, politically independent judiciary system.

Other studies suggest that sound corporate governance enhances stable and low cost
capital formation. To preserve this benefit, measures taken should include corporate
management to prevent fraud, waste, and inefficient use of corporate assets, and
disclosure of relevant information using consistent and comparable according and
auditing standards.

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4.0 THE SECOND IMPORTANCE OF CORPORATE GOVERNANCE

Corporate governance systems are largely concerned with the relationship between a
companys management, the board of directors, shareholders and its other stakeholders. It
encourages transparency, disclosure and accountability, which would instil investors
confidence in terms of corporate management and corporate performance.

The Board believes that they are not only accountable to shareholders but also responsible
for managing a successful and productive relationship with the Companys stakeholders.

The Company recognises the importance of maintaining transparency and accountability


to its shareholders. The Board ensures that all the Companys shareholders are treated
equitably and the rights of all investors, including minority shareholders, are protected.
The Board provides its shareholders and investors with information on its business,
financials and other key activities in the Annual Report of the Company, which contents
are continuously enhanced to take into account the developments, amongst others, in
corporate governance.

The Company recognises the importance of being transparent and accountable to its
stakeholders and, as such, maintains an active and constructive communication policy that
enables the Board and Management to communicate effectively with investors, financial
community and the public generally.

The various channels of communications are through meetings with institutional


shareholders and investment communities, quarterly announcements on financial results
to Bursa, relevant announcements and circulars, when necessary, the Annual and
Extraordinary General Meetings and through the Companys corporate website at
www.nestle.com.my, from which shareholders and prospective investors can access

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corporate information, annual reports, press releases, financial information, company


announcements and share prices of the Company. To maintain a high level of transparency
and to effectively address any issues or concerns, the Group has a dedicated electronic
mail,InvestorRelations.Malaysia@MY.nestle.com, to which stakeholders can direct their
queries or concerns.

5.0 SUMMARY

The UK Corporate Governance Code (2010) applies the comply or explain approach.
This approach requires companies to comply with the rules and recommendations,
otherwise, they need to explain their non-compliance.
Whereas the Organisation for Economic Co-operation and Development (OECD) was
established to promote policies that will improve the economic and social wellbeing of
people around the world.
The Sarbanes-Oxley Act 2002 was enacted by the Senate and House of Representatives of
the United States of America with the purpose to protect investors by improving the
accuracy and reliability of corporate disclosures made pursuant to the securities laws as
well as for other purposes.
The importance of good corporate governance is widely recognised as an essential
attribute to attract investment in competitive companies and efficient financial markets. It

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instils confidence and trust in companies and financial markets, it instils confidence and
trust in companies and financial markets which would attract the inflow of foreign direct
investment in a country.
Also corporate governance systems are largely concerned with the relationship between a
companys management, the board of directors, shareholders and its other stakeholders. It
encourages transparency, disclosure and accountability, which would instil investors
confidence in terms of corporate management and corporate performance.

REFERENCE

Dr Noor Afza A., Dr Basariah S., Dr Norhani A., Dr Hasnah K., Universiti Utara Malaysia, 2013,
BBCG3103 Corporate Governance, Open University Malaysia

Allen, Jamie, 2000a, Overview of Asian Corporate Governance

Allen, Jamie, 2000b, Code Convergence in Asia: Smoke or fire?, Asian Corporate Governance
Association

Organisation for Economic Co-operation and Development (OECD), 2004, OECD Principles of
Corporate Governance

Securities Commission Malaysia, 2012, Malaysian Code on Corporate Governance

http://www.nestle.com.my/

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