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Stakeholder Theory

In 1984, Freedman proposed the theory about stakeholders in his book “stakeholder approach to strategic management”. The stakeholder’s management theory refers to all managerial activities the manager of company carries out in order to balance the interest’s requirements of all stakeholders. The theory of stakeholders is different from the shareholders’ theory. Stakeholders think that any company can not develop without the participation of stakeholders. The objective of company is to pursue the whole interest of stakeholder rather than some people’s interest. As the development of society and technology, the theory of stakeholders is more abundant in recent years. More and more companies take account into stakeholders when the companies make critical decisions.

The theory of stakeholders challenges the authority of shareholders. The theory of stakeholders is a new point of view in the distribution of resources and ownership of enterprises (Annika, Carlsson, K., Karl, Henrik, D., Moll, C. H & Dario, P., 2008). The comparison of stakeholders and shareholders does not still stop until today. The word “stakeholders” date back to 1929. The definition of stakeholders is various. The definition that is accepted by majority belongs to Freeman. He thought that stakeholders are all individuals and groups which can affect the

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objectives of enterprise or are affected in the process of pursuing enterprise’s objectives.

Generally speaking, stakeholders include shareholders, creditors, employees, customers, suppliers and business partners. In addition, the content of shareholders is still expanding. Now governments, local residents, local communities, media, and environmentalists are included in stakeholders. The theory of stakeholders will play a more important role in global business in the future. International business involves in more stakeholders compared with domestic business. The purpose of this essay is to explore why stakeholders are important in an international business and the effects of Stakeholder Theory on an international business. Firstly, it is the introduction of Stakeholders theory. And then the following is the effects of stakeholders on international business.

The Stakeholders Theory To some extent, business is the combination of stakeholders. Moreover, the stakeholders are becoming more and more. The impacts of stakholders are great on an international business. The part will explore the definition of stakeholders and the contents of stakeholders, and the strengths and weaknesses of stakeholders. The definition of stakeholders Even though it is hard to define a concept, there are many scholars tried to define stakeholders. This part will list a few popular definitions of stakeholders. Firstly, in 1963, an internal memorandum of Stanford research institute defined stakeholders as “those groups without whose support the organization would cease to exist”.

That was the first time to use the concept of stakeholders. Secondly, Freeman, R. Edward and Reed, David L defined stakeholders like this: “A corporate stakeholder is a party that can affect or be affected by the actions of the business as a whole” (Freeman, R, E & David, L., 1984). This definition was come up with in 1984. Their definition was the most popular among scholars and affected the following scholars. Thirdly, stakeholder was defined like that a person or organization that has legitimate interest in a project or entity during 1990s. The connotation and extension of stakeholder was expanded greatly.

More and more individuals and organizations are included in the concept of stakeholders. To some extent, the concept has been broadened to include everyone who has an interest or stake in an entity. As the development of economy and society, the definition of stakeholder will be broadened continually. It is not necessary to evaluate which definition is best. The review of definition is to have better understanding to stakeholders.

Which individuals and organization should be included in stakeholders At first, shareholders may be the only stakeholders of an organization. However, as the expansion of enterprises, on the one hand, the operation and management of enterprises are affected by more individuals and organizations. On the other hand, the actions of enterprises bring influences to more individuals and organizations. And then more and more people thought that employees and creditors are stakeholders of an entity. As a matter of fact, it is easy to understand that employees and creditors are the stakeholders of a company. After all, the behaviors of company are carried out by employees, and the interests of creditors have everything to do with the actions of a company (Freeman, R, E., Andrew, C. W & Bidhan, P., 2004).

After customers became the new orientation of an enterprise, enterprise tended to pay more attention to interests of customers in order to absorb and keep customers. In addition, customers have been important objects need to be protected. The actions of enterprise absolutely affect their interests. Gradually corporate social responsibility enters into people’s eyes (Michael, L. B., 2006). Environmental protection and charity career become the responsibilities of enterprise. Enterprises do not neglect or escape from their social responsibility when they are pursuing commercial interests.

The development of industry broke environment heavily, enterprises should pay for their behaviors to environment. Enterprises obtain enormous commercial profit from society; they should do something for the whole society. Now government, local residents, and communities are stakeholders of an entity. As a matter of fact, the expansion of stakeholders is relative to the development of enterprise (Sankar, S., Bhattacharya, B. C & Daniel, K., 2006). The relationships of employer and employee, company and customers, retailer, producer and supplier, company and government become more complicated. To some extent, the collaboration plays a more important role than competition under the affects of stakeholders.

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