Characteristics of a Global Corporation

by Craig Berman; Updated September 26, 2017

While many use "global" in the same way as international when it comes describing a business, some analysts make distinctions between how each operates. On a basic level, a global company is one that operates in more than one country. Particularly in the United States, the term can mean different things in different contexts, with the characteristics of a global company varying accordingly.

Global Corporations in Finance

In the world of finance and investing, a global corporation is one that has significant investments and facilities in multiple countries and lacks a dominant headquarters. Global corporations are governed by the laws of the country where they are incorporated. A global business connects its talent, resources and opportunities across political boundaries. Because a global corporation is more invested in its overseas locations, it can be more sensitive to local opportunities -- and also more vulnerable to threats. A company that does business in Africa, for example, might find itself dealing with the implication from a local Ebola outbreak as well as its commercial operations.

Tips

  • Accounting rules for global companies also vary based on location. Many present statements according to Generally Accepted Accounting Principles to comply with the general expectations in the United States, though others might use International Financial Reporting Standards instead.

In contrast, an international company is one that is headquartered in the United States, but also does business overseas and might have a large presence in multiple areas. This company would be governed by U.S. regulations, assuming its headquarters remain here, but may also have foreign subsidiaries governed by local laws.

Academic Definition

Business analysts and academics, such as the groundbreaking Michael Porter at Harvard University, tend to define global businesses more narrowly and distinguish them from other operations overseas. This approach defines a global business as one that maintains a strong headquarters in one country, but has investments in multiple foreign locations. Such investments may involve direct investments in foreign assets, such as manufacturing facilities or sales offices. The headquarters generally is its home country, though some move to more favorable regulatory or taxation locations over time. Global corporations strive to create economies of scale by selling the same products in multiple locations, limiting local customization.

In contrast:

  • An international company has no foreign direct investment and makes its wares only in its home country. Its involvement outside its borders is essentially limited to importing and exporting goods.
  • A multinational company invests directly in foreign nations, but this is usually limited to a few areas. Products are customized to local preferences, rather than homogenized, limiting the ability to create economies of scale.
  • Transnational companies take the global corporation a step further. A transnational company invests directly in dozens of countries and distributes decision-making capabilities to its various local operations.