Business Task 1 on individual report Essay

Despite its future eco nary(preno(prenominal)inal)ic prospects, the United Arab Emirates continues to suffer from merged cheek issues. The development of integrated politics in the region has largely been influenced by religion (Gellis et al., 2002). The rules g everywherening the practice of corporeal goernance have been meaningfully influenced by Islamic Sharia. This reflects the pagan and religious characteristic of the region (Islam and Hussain, 2003). Islamic Sharia specifies a military issue of core look ons such as trust, integrity, honesty and justice which ar alike(p) to the core values of corporate governance codes in the West. However, a survey of corporate governance in a number of Gulf countries such as United Arab Emirates suggests that the region continues to suffer from corporate governance weaknesses.2.0 Reasons for the twist including use of suitable inference and data The organise of the above sectors and groundss for the structure and dos on the carrying into action of smasheds has been vital subject of pass in the finance literature. Empirical raise suggests that privately held trustworthys slant to be more efficient and more remunerative than publicly held tautens. This shows that willpower structure matters. The question now is how does it affect whole act and why this kind of structure? This question is significant since it is based on a research agenda that has been strongly promoted by La Porta et al. (1998 1999 2000).According to these studies, failure of the legislative framework to provide sufficient protection for impertinent investors, entrepreneurs and founding investors of a company tend will maintain large positions in their besotteds thus resulting in a grueling will power structure. This finding is fire because it implies that stimulateership structure can affect the exertion of the loyal in one way or the some other(a). It is indisputable the lack of regulations in corporate govern ance gives managers who intend to mishandle the lead of hard currency for their own individualal interest a low control level. The empirical results from the past studies of impacts of self-will structure on public presentation of corporate have been inconclusive and mixed up (Turki, 2012).In response to corporate governance issues and their impact on corporate instruction execution, Shleifer and Vishny (1997) and Jensen (2000) have suggested the requisite for improved corporate governance structures so as to enhance transparency, accountability and responsibility.embodied governance reform and the introduction of innovative methods to limit abuse of essence by crest management have been justified by youthful large scale accounting and corporate failures such as Enron, HealthSouth, Tyco International, Adelphia, Global Crossing, WorldCom, Cendant and the recent globular fiscal crisis.According to Monks and Minow (1996) numerous corporate failures suggest that existing cor porate governance structures are not working raiseively. integrated failures and accounting scandals ab initio appear to a U.S phenomenon, resulting from inordinate greed by investors, overheated equity markets, and a winner-take-all mind-set of the U.S society. However, the last decade has shown that irregularities in accounting, managerial greed, abuse of power, are global phenomenon that cannot be confine to the U.S. Many non-U.S firms such as Parallax, Adecco, TV Azteca, Hollinger, Royal Dutch Shell, Vivendi, China Aviation, Barings Bank, etc. have witnessed failures in corporate governance and other forms of corporate mishaps.In addition to corporate governance failures, global standards have declined significantly and u give the axehical and questionable practices have be sleep with widely accepted. The net impact has been a reduction in the amount of faith that investors and shareholders have in the efficiency of capital markets. There is no universally accepted corporat e governance model that the interest of shareholders and investors are adequately protected as wellhead as ensuring that enough shareholder wealth is being created (Donaldson and Davis, 2001 Huse, 1995 Frentrop, 2003).Much of the debate on corporate governance has pointed on understanding whether the Board of Directors has enough power to ensure that top management is making the right decision. The handed-down corporate governance framework often ignores the unique effect that the owners of the firm can have on the board and thus the firms top management. The traditional framework at that pratfore ignores that fact that the owners of the firm can influence the board and thus top management to act of make particular decisions. Corporate governance studies are therefore yet to identify and deal with the complexities that are inherent in corporate governance attend toes (Jensen, 2000 Shleifer, 2001 Frentrop, 2003 Donaldson and Davis, 2001 Huse, 1995).Investment choices and owner preferences are affect among other things by the extent their degree of assay aversion. Owners who have economic relations with the firm will be interested in protecting their interests however if it is reasonably evident that such protection will result in poor surgical procedure. According to Thomsen and Pedersen (1997) banks that play a dual aim as owners and lenders would discourage high risk projects with great profit potential because such projects may hinder the firm from showdown its financial obligations if the project fails to realize its expected cash flows. The presidential term alike plays a dual role in that it serves as both an owner and a regulator. Therefore owners who play a dual role in the firm often face a trade-off between promoting the creation of shareholder value and meeting their other specific preys (Hill and Jones, 1992).Existing corporate governance frameworks have often ignored these issues in UAE. Rather, much of the emphasis has been on the effectiveness of the board in ensuring that top management is working towards meeting the goals of shareholders. Present corporate governance frameworks lack the ability to monitor owners and their influence on top management. The framework lacks the ability to align the role played by firm owners, board of directors and managers interests and actions with the creation of shareholder value and welfare motivation of stakeholders.Discussion of the possible future structure of the industry The United Arabs Emirates, and mainly Abu Dhabi, is unchanging to increase its economy by reducing the total proportion impact of hydrocarbons to Gross Domestic Product. This is currently being done by growing investiture in sector areas like services in telecommunication, education, media, healthcare, tourism, aviation, metals, petrochemicals, pharmaceuticals, biotechnology, transportation and trade.Significant investments have been made by United Arab Emirates to establish itself as a region al trade hub. United Arab Emirates is also member of the World Trade plaque (WTO). In addition, there are ongoing negotiations to establish free trade agreements with other regions and countries such as the EU. These factors will top positively to the regions integration into the global economy. United Arab Emirates is currently working towards diversifying their economies from the oil sector into other sectors. This diversification is expected not only to increase trade among member countries but also to increase the regions trade with other countries and regions (Sturm et al., 2008).How the structure affects strategy decisions self-command structure has an impact on firm executing in United Arab Emirates energy production owned sector. This region has witnessed significant economic growth over the last few decades. The region is also facing turbulent times with wonder to corporate governance practices, resulting in poor firm performance. Corporate governance issues are no t limited to the United Arabs Emirates as part of GCC Countries. From a global point of view, corporate governance has witnessed significant transformations over the last decade (Gomez and Korine, 2005). As a result, there has been an interest in the research attention accorded to corporate governance. The credibility of current corporate governance structures has come under scrutiny owing to recent corporate failures and low corporate performance across the world.The risk aversion of the firm can be straight off affected by the possession structure in place. Agency problems occur as a result of divergence in interests between principals (owners) and agents (managers) (Leech and Leahy, 1991). The board of directors is thereby regarded as an intermediary between managers and owners. The board of directors plays four important roles in the firm. These include monitoring, stewardship, monitoring and reporting. The board of directors monitors and controls the kickshaw of top managemen t. The board of directors influences managerial discretion in two ways internal influences which are imposed by the board and external influences which relate to the role played by the market in monitoring and sanctioning managers (Jensen and Meckling, 1976 2000).B Contribution of the sector to the economy of your chosen countryAnalysis of contribution of sector United Arab Emirates remain major global economic player because it has the highest oil reserves. UAE together with the other Gulf Cooperation Council accounts for over 40% of global oil reserves and remains important in give the global economy with oil in future. As a result, investment spending on oil exploration and development of new oil handle is on the rise (Sturm et al., 2008).Global oil demand is currently on the rise. This growth is driven mainly by emerging market economies, as well as the oil producing UAE as part of GCC countries. In addition, Europe and the U.S are witnessing depletions in their oil reserv es. This means that these regions will become increasingly dependent on the Gulf region which includes UAE for the supply of oil (Sturm et al., 2008). The importance of the United Arabs Emirates as a global economic player is therefore expected to increase dramatically in the near futureUse of appropriate data and other evidence By the year 2011, the GDP of United Arab Emirates totaled to 360.2 billion dollars. after in 2001, yearly growth of GNP varied from about 7.4% to 30.7%. As part of the chief crude oil suppliers, the United Arab Emirates was at first egress off from the universal recession by high prices on oil that rose to a record 147 US dollars per barrel in the month of July in 2008. Nevertheless, the nation was ultimately influenced by the excavating worldwide recession which resulted to a decline in oil demand, reducing the oil prices to a reduced amount not exceeding a third of the peak of July 2008. In the last 2008 months, the trembles rumbling through global ec onomies were lastly experienced in this section. crude oil (million barrels) proven reserves, 2013 Total oil supply (thousand bbl/d), 2012 Total petroleum consumption, 2012 Reserves-to-production ratio97,800 3,213 618 95Natural Gas (billion cubic feet)Proved reserves, 2013 Dry natural vaunt production, 2012 Dry natural gas consumption, 2012 Reserves-to-production ratio215,025 1,854 2,235 116UAE summary energy statisticsC Critical appraisal of sustainability targets on business plan of your chosen organisationOil firms in United Arab Emirates is still quite immature. Most businesses are controlled by a few shareholders and family monomania is prevalent. Most large and small businesses are family businesses (Saidi, 2004). The realm is also significantly involved in the management of companies (Union of Arab Banks, 2003).This is contrary to the status quo in Western democracies where firms are owned by a various mathematical group of shareholders which makes ownership to be comple tely separated from control. The ownership structure in United Arab Emirates suggests that stewardship and monitoring aspects of non-executive directors (NEDs) is absent in firms based in United Arab Emirates. ownership niggardliness has remained high in the region because of practices such as rights issues which enable existing wealthy shareholders, and influential families to subscribe to new shares in Initial reality Offerings (IPOs) (Musa, 2002).According to a study of the corporate governance practices of five countries by the Union of Arab Banks (2003), ownership of corporations is concentrated in the hands of families. In addition, corporate boards are dominated by compulsory shareholders, their relatives and friends (Union of Arab Banks, 2003). There is a no clear separation between control and ownership. Decision making is dominated by shareholders. The number of independent directors in the board is very small and the dish ups of the CEO and Chairman are carried out by the same person. The high concentration in firm ownership therefore undermines the principles of good corporate governance that are prevalent in western settings (Yasin and Shehab, 2004). This evidence is consistent with findings by the World Bank (2003) in an investigation of corporate governance practices in the Middle East no.th Africa (MENA) region which also includes the Gulf region.1.0 Objective of empirical evidence The empirical evidence on the impact of ownership structure on firm performance is mixed. Different studies have made use of different samples to arrive at different, self-contradictory and sometimes difficult to compare conclusions. The literature suggests that there are two main ownership structures in firm including dispersed ownership and concentrated ownership. With abide by to concentrated ownership, near of the empirical evidence suggests that concentrated ownership negatively affects performance (e.g., Johnson et al., 2000 Gugler and Weigand, 20 03 Grosfeld, 2006 Holmstrom and Tirole, 1993). Different studies have also focused on how specifically concentrated ownership structures affect firm performance. For example, with respect to organisation ownership, Jefferson (1998), Stiglitz (1996), and Sun et al. (2002) provide theoretical arguments that authorities ownership is likely to positively affect firm performance because political sympathies ownership can facilitate the resolution of issues regarding the ambiguous property rights.However, Xu and Wang (1999) and Sun and Tong (2003) provide empirical evidence that government ownership has a negative impact on firm performance. On the contrary, Sun et al. (2002) provide empirical evidence that government ownership has a positive impact on firm performance. It has also been argued that the family alliance between government ownership and firm performance is non-linear. Another commonly investigated ownership type and its impact on firm performance is family ownership. An derson and Reeb (2003), Villanonga and Amit (2006), Maury (2006), Barontini and Caprio (2006), and Pindado et al. (2008) suggest that there is a positive link between family ownership and firm performance. Despite the positive impact some studies argue that the impact of family ownership is negative.The impact of foreign ownership has also been investigated. Most of the evidence suggests that foreign ownership has a positive impact on firm performance (e.g., Arnold and Javorcik, 2005 Petkova, 2008 Girma, 2005 Girma and Georg, 2006 Girma et al., 2007 Chari et al., 2011 Mattes, 2008).With respect to managerial ownership, it has been argued that the relationship is likely to be positive (Jensen and Meckling, 1976 Chen et al., 2005 Drobetz et al., 2005). Despite this suggestion Demsetz and Lehn (1985) observe a negative relationship between dispersed ownership and firm performance. institutional ownership has also been found to have a positive impact on firm performance (e.g. McConnell and Servaes, 1990 Han and Suk, 1998 Tsai and Gu, 2007). Furthermore, some studies suggest that there is no link between insider ownership and performance .Very limited studies have been conducted on the impact of ownership structure on firm performance in GCC countries like UAE. For example, Arouri et al. (2013) provide evidence that bank performance is affected by family ownership, foreign ownership and institutional ownership and that there is no significant impact of government ownership on bank performance. Zeitun and Al-Kawari (2012) observe a significant positive impact of government ownership on firm performance in the Gulf region.The pervasive endogeneity of ownership has been cited as a potential reason why it is difficult to disentangle the relationship between ownership structure and firm performance. In addition, the relation may be a function of the type of firm as well as the period of observation in the life of the firm. This study is motivated by the mixed results ob tained in previous studies and the limited number of studies that have focused on UAE as part of GCC countries. The objective of the study is to explore in more details the factors that motivate particular types of ownership structure and the potential impact of ownership structure and firm performance in the Gulf region2.0 Empirical indorse The empirical evidence will focus on how different ownership structures affect firm performance. Firms are often characterized by concentrated and dispersed ownership. Concentrated ownership is expected to have a positive impact on firm performance owning to the change magnitude monitoring that it provides (Grosfeld, 2006).Dispersed ownership has been found to be less frequent than expected. Empirical evidence suggests that most firms are characterized by mixed forms of ownership concentration (La Porta et al., 1999). Given this high level of ownership concentration, there has been an increasing concern over the protection of the rights of non-controlling shareholders (Johnson et al., 2000 Gugler and Weigand, 2003). Empirical evidence shows that ownership concentration at best results in poor performance. Concentrated ownership is apostrophizely and has the potential of promoting the exploitation of non-controlling shareholders by controlling shareholders (Grosfeld, 2006). Holmstrom and Tirole (1993) argue that concentrated ownership can contribute to poor liquidity, which can in warp negatively affect performance. In addition, high ownership concentration limits the ability of the firm to diversify. There are various forms of concentrated ownership such as government ownership, family ownership, managerial ownership, institutional ownership and foreign ownership. In the next section, the literature review will focus on how these separate ownership structures affect firm performance.2.1.1 Government willpower The impact of government ownership on firm performance has attracted the attention of some(prenominal ) researchers because the government accounts for the largest proportion of shares of listed companies in some countries and also because government ownership can be used as an instrument of intervention by the government (Kang and Kim, 2012). Shleifer and Vishny (1997) suggest that government ownership can contribute to poor firm performance because Government Owned enterprises often face political pressure for excessive employment. In addition, it is often difficult to monitor managers of government owned enterprises and there is often a lack of interest in carrying out business process reengineering (Shleifer and Vishny, 1996 Kang and Kim, 2012). Contrary to Shleifer and Vishny (1997) some economists have argued that government ownership can improve firm performance in less developed and emerging economies in particular. This is because government ownership can facilitate the resolution of issues with respect to ambiguous property rights.The empirical evidence on the impact of st ate ownership on firm performance is mixed. For example, Xu and Wang (1999) provide evidence of a negative relationship between state ownership and firm performance based on data for Chinese listed firms over the period 1993-1995. The study, however, fails to find any link between the market-to-book ratio and state ownership (Xu and Wang, 1999). Sun and Tong (2003) employ ownership data from 1994 to 2000 and compares legal person ownership with government ownership. The study provides evidence that government ownership negatively affects firm performance while legal person ownership positively affects firm performance. This conclusion is based on the market-to-book ratio as the measure of firm performance.However, using return on sales or gross earnings as the measure of firm performance, the study provides evidence that government ownership has no effect on firm performance. Sun et al. (2002) provide contrary evidence from above. use data over the period 1994-1997, Sun et al. (200 2) provide evidence that both legal person ownership and government ownership had a positive effect on firm performance. They explain their results by suggesting that legal person ownership is another form of government ownership. The above studies treat the relationship between government ownership and firm performance as linear. However it has been argued that the relationship is not linear.Huang and Xiao (2012) provide evidence that government ownership has a negative net effect on performance in transition economies. La Porta et al. (2002) provide evidence across 92 countries that government ownership of banks contributes negatively to bank performance. The evidence is consistent with Dinc (2005) and Brown and Dinc (2005) who investigate government ownership banks in the U.S.2.1.2 Family willpower Family ownership is very common in oil firms in UAE. There is a difference between family ownership and other types of shareholders in that family owners tend to be more interested in the long-run survival of the firm than other types of shareholders(Arosa et al., 2010).. Furthermore, family owners tend to be more concerned about the firms reputation of the firm than other shareholders (Arosa et al., 2010). This is because damage to the firms reputation can also result in damage the familys reputation. Many studies have investigated the relationship between family ownership and firm performance. They provide evidence of a positive relationship between family ownership and firm performance (e.g. Anderson and Reeb, 2003 Villalonga and Amit, 2006 Maury, 2006 Barontini and Caprio, 2006 Pindado et al., 2008).The positive relationship between family ownership and firm performance can be attributed to a number of factors. For example, Arosa et al. (2010) suggests that family firms long-term goals indicate that this category of firms desire investing over long horizons than other shareholders. In addition, because there is a significant relationship between the weal th of the family and the value of the family firm, family owners tend to have greater incentives to monitor managers (agents) than other shareholders (Anderson and Reeb, 2003). Furthermore, family owners would be more interested in offering incentives to managers that will make them loyal to the firm.In addition, there is a substantial long-term presence of families in family firms with strong intentions to preserve the name of the family. These family members are therefore more likely to forego short-term financial rewards so as to enable future generations take over the business and protect the familys reputation (Wang, 2006). In addition, family ownership has positive economic consequences on the business. There are strong control structures that can motivate family members to communicate effectively with other shareholders and creditors using higher quality financial reporting with the resulting effect being a reduction in the cost of financing the business .Furthermore, familie s are interested in the long-term survival of the firm and family, which reduces the opportunistic port of family members with regard to the distribution of earnings and allocation of management, positions.Despite the positive impact of family ownership on firm performance, it has been argued that family ownership promotes high ownership concentration, which in turn creates corporate governance problems. In addition, high ownership concentration results in other types of costs (Arosa et al., 2010). As earlier mentioned, La Porta et al. (1999) and Vollalonga and Amit (2006) argue that controlling shareholders are likely to undertake activities that will give them gain unfair advantage over non-controlling shareholders. For example, family firms may be unwilling to pay dividends .Another reason why family ownership can have a negative impact on firm performance is that controlling family shareholders can easily favour their own interests at the expense of non-controlling shareholders by running the company as a family employment service. Under such circumstances, management positions will be limited to family members and incomparable dividends will be paid to family shareholders (Demsetz, 1983 Fama and Jensen, 1983 Shleifer and Vishny, 1997). Agency costs may arise because of dividend payments and management entrenchment (DeAngelo and DeAngelo, 2000 Francis et al., 2005). Families may also have their own interests and concerns that may not be in line with the concerns and interests of other investor groups (Shleifer and Vishny, 1997).Schulze et al. (2001) provide a discussion, which suggests that the impact of family ownership on firm performance can be a function of the generation. For example, noting that agency costs often arise as a result of the separation of ownership from control, they argue that first generation family firms tend to have limited agency problems because the management and supervision decisions are made by the same individual. As such ag ency costs are reduced because the separation of ownership and control has been completely eliminated. Given that there is no separation of ownership and control in the first generation family firm, the firm relationship between family ownership and performance is likely to be positive (Miller and Le-Breton-Miller, 2006). As the firm enters second and third generations, the family property becomes shared by an increasingly large number of family members with diverse interests. The moment conflict of interests sets in the relationship between family ownership and performance turns negative in accordance to (Chrisman et al., 2005 Sharma et al., 2007). Furthermore, agency problems arise from family relations because family members with control over the firms imagerys are more likely to be generous to their children and other relatives (Schulze et al., 2001).To summarize, the relationship between family ownership and firm performance may be non-linear. This means that the relationship is likely to be positive and negative at the same time. To support this contention, a number of studies have observed a non-linear relationship between family ownership and firm performance (e.g. Anderson and Reeb, 2003 Maury, 2006). This means that when ownership is less concentrated, family ownership is likely to have a positive impact on firm performance. As the family ownership concentration increases, minority shareholders tend to be exploited by family owners and thus the impact of family ownership on firm performance tends negative. abject countries have a relatively weak diamond of competitive advantages (Vlahini-Dizdarevi 2006).D. Analysis1.0 Potters Diamond ModelThe competitive forces advantages or analysis ought to be fixed on the main competition factors and its impact analysis on the business (Porter 1998, p.142). The state, and home wealth cannot be inherited -3554730607695Faktorski uvjeti00Faktorski uvjeti-27546301293495Vezane i podravajue industrije00Vezane i podrava jue industrije-332041536195ansa00ansa it ought to be produced (Porter 1998, p.155). This wealth is influenced by the ability of industry to continually upgrade and innovate itself, and this is achievable exclusively by increase means in production in all parts of fiscal action. The model of Porter concerns aspect which circuitously or openly affects advantage of competition. The aspect structure a place where given manufacturing sector like in this case, oil sector, state or region a learn and act on the way of competing in that environment. (Porter 1998, p. 165).Left0 distributively diamond (oil) and the field of diamond (oil) as the whole structure consists of main influences that makes the oil sector competition to be successive. These influences entail every ability and resource vital for competitive advantage of the sector data forming the opportunity and providing the response to how accessible abilities and resources ought to be ruled each interest group aim and the is most crucial, oil sector pressure to innovating and investing.SWOT ANALYSISStrengthsThe oil sector has many years producing oil and so is well established.Comparatively lots of sub-sectors for industrialist perceptual constancy and support.WeaknessesComparatively out of date scientific foundation.Inadequate well educated professionals and residents in comparison to the new industry needs.Lesser costs of work cost in oil sector due to low salary from regular salaries in UAE.OpportunitiesThe likelihood for resources application of EU agreement funds, as is the state resources more or less good quality of 11 % graduate students share that are likely to be absorbed into this oil sector.Contribution in motivational and investment projects that support in developing the economy of UAE every time.ThreatsExpansion of oil production capacity of economies of South-Eastern that have competed with low prices of products and little costs of production.Loan jobs and production globalisation. w ages of local competition of adjacent economies, and thus reinforcing actions that attract direct overseas exploitation of the oil sector in UAE through investments.ReferencesAdmati, Pfleiderer, P., Z. 1994. 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