In today’s world, it’s easier than ever for businesses to expand beyond the borders of their own country. Technology makes it simple to connect with clients, customers and coworkers across the globe, and smartphones mean people can always be in touch. Businesses, however, have to make some decisions up front about how they choose to expand into these worldwide markets, how they’re going to manage their own goods and how many resources they’re willing to put into international business.
Not all worldwide businesses are the same. Companies can choose to operate in a few different ways. There is, of course, some overlap with regards to these terms, and in today’s business world they are occasionally used interchangeably. However, these standard definitions can help differentiate a company’s international strategy.
An international company is involved in exporting and selling its goods and/or services to other nations, but other than exporting (and/or importing, such as purchasing raw materials), has no other investment in these other nations. All of the business functions and headquarters remain in the country of origin, and there are no branches of the company overseas in any of the nations the business trades with. This allows a company to streamline its decision-making process, and saves the business the cost and hassle of establishing offices around the world, but can also cause the company to struggle with a lack of understanding of these particular global markets.
Examples of international firms include:
- Apple, a company that produces consumer electronics such as computers, tablets, mobile phones, etc. Apple sells its products around the world, but the headquarters and all product development are located within the U.S.
- Nike started as an international business, although it may be considered a global company at this point. Decisions for the Nike brand are all made within the U.S., and Nike products are exported to other nations.
- Any small local business who may purchase materials from, or sell products to, other countries is technically an international business.
A global company, like a multinational company, has investment and business in the countries in which it chooses to operate. Global companies usually have subsidiaries in many nations, meaning dozens of sites around the world. A global company, however, is one where the central headquarters of the business makes the decisions for driving the business, and the same product(s) are offered in every country, regardless of local culture and tastes.
In this case, the branches can personalize the marketing of their products to help drive sales, but the product catalog remains the same. This allows the company to manage its foreign sales and to keep one company culture and one set of goods for efficiency purposes, but gives up the opportunity to tailor offerings to these local markets.
Examples of global companies include:
- McDonald's restaurants are located across the globe, and serve the same menu in all of their locations. There is, of course, some menu customization depending on the location, which leans more toward the multinational category, but at a high level, McDonald's behaves like a global business.
- Hyatt and Hilton hotels, where the draw to the customer is that their rooms will be the same no matter what nation the hotel is in.
A multinational company has establishments in the nations it chooses to operate in, not just sales. The company will choose to establish branches and operations in these nations, to oversee the sales and/or importing from that particular country. Multinational companies normally have fewer countries of interest than a global company might, mainly because of the way they manage their local offerings.
In a multinational company, there is still a central headquarters, but the branches of the business in different countries are in charge of somewhat localizing the products and the marketing to fit the culture. This adds the advantage of being able to offer somewhat tailored products within different nations, but also adds increases the complexity of having to produce and manage the different offerings.
Examples of multinational companies include:
- Starbucks, where most of the menu is the same, but offerings change based on local tastes. Starbucks also customizes its locations to the local culture, providing different seating and setup to make local customers more comfortable.
- Honda, whose headquarters is in Japan, but has established branches all over the world. The product lineup varies by country – for example, Honda trucks were developed for the U.S. market.
Transnational is a newer term, describing a business with heavy operations in multiple nations. Transnational businesses become incredibly complex, as each local branch has its own decision-making power, its own markets and its own product selection. This type of worldwide operation offers the most flexibility and versatility, but this comes at the cost of streamlined management and product catalog.
Examples of transnational companies include:
- Nestle, which has a headquarters, but international branches make their own decisions regarding operations and product offering.
- General Electric, which has branches across the globe, many of which make their own decisions on policy and business direction.
Keep in mind that there is definitely crossover in these examples; in today’s market, many businesses operate as a combination of these types. This can often make a company’s global strategy unclear to its employees and, sometimes, customers.
The business has to decide on its strategy based on its product offering, how customizable it may actually be, how many resources will be available and what the overall direction is of the company’s business. These days, some level of localization is almost required in order for a global company to be successful, but the extent of localization varies from business to business.
These globalized businesses can have positive and negative effects on local economies. On one hand, expanding a business into a foreign country creates jobs in that country, which helps stimulate the local economy. It can also introduce new products to a region that did not have access before, which – depending on the product – can help improve the standard of living. A global business is also normally a larger business which operates on economies of scale, meaning that its products are normally more affordable. For the consumer, international businesses come with plenty of benefits.
However, for local businesses, the effects that multinational companies can have on the economy are far from positive. Many local businesses find they can’t compete with the price point of a global company, not just in terms of products, but employee retention as well. When these local businesses have to close, it can negatively affect the local economy.
This means the impact of globalization of business is somewhat of a mixed bag, and it depends on the nation in which this international business is being established and the local economy’s current situation. The company needs to understand the local economy before investing.
For businesses these days, expanding into the worldwide market can seem like an obvious key to success: offering products to new consumers and opening up new streams of revenue for the company. The question for every company is how to operate the business at this worldwide level, and it means understanding the ways to do global business in order to be successful.