Malcolm Rivera
Global corporations, also known as multinational companies, are businesses that operate in two or more countries. They have expanded rapidly in recent decades due to falling trade barriers, new market opportunities, expanding global supply chains, and outsourcing operations to lower-cost regions. Global corporations bring benefits such as job creation, infrastructure investment, and improved product quality to their host countries, but they are also known for questionable tax, environmental, and labor practices. The structure of a global corporation typically consists of a parent company headquartered in one country, with subsidiaries, branches, or joint ventures in multiple host countries. The parent company maintains strategic control over global operations, including overall goals, policies, and standards. Some well-known examples of global corporations include Coca-Cola, Apple, Toyota, Nestle, and Exxon Mobil.
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What You'll Learn
Global corporations and the growth of the global corporate structure
Global corporations are companies that do business all over the world. They surpass national borders and take advantage of opportunities in different countries to manufacture, distribute, market, and sell their products. The idea of doing business globally is not new, but the term "global corporation" is a fairly recent designation.
There are four classifications of global corporations: international companies, global companies, multinational companies, and transnational companies. International companies are importers and exporters, typically without investment outside of their home country. Global companies have invested in and are present in many countries, marketing their products and services to each local market. Multinational companies have investments in other countries, but do not have coordinated product offerings in each country. They adapt their products and services to each individual local market. Transnational companies are complex organisations that have invested in foreign operations and have a central corporate facility, but they give decision-making, research and development, and marketing powers to each individual foreign market.
The growth of the global corporate structure has been influenced by several factors. Firstly, the increase in international trade has been facilitated by international regulatory groups like the WTO and transnational trade agreements like NAFTA. Secondly, falling trade barriers, the search for new markets, expanding global supply chains, and outsourcing operations to lower-cost regions have contributed to the growth of global corporations. Additionally, the progressive "de-industrialization" of national economies through the off-shoring of labour and the related costs have transformed older manufacturing companies into more integrated global firms.
The expansion of global corporations has had significant impacts on the world economy. Financial and product markets are more interconnected than ever before, and global corporations have shaped the flow of capital, goods, and services during the process of globalization. They have also sparked debates around their power, labour practices, environmental impacts, and tax avoidance strategies. The responsibilities of global corporations have become a subject of discussion, with frameworks like ESG (environmental, social, and governance impact) emerging to guide their decision-making and influence their perception of their relationship with their home countries.
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MNCs and TNCs
Global corporations can be classified into four types: international companies, global companies, multinational companies (MNCs), and transnational companies (TNCs). International companies are importers and exporters that typically do not invest outside their home country. Global companies, on the other hand, have invested in and are present in many countries, marketing their products and services to each local market.
MNCs have business operations and generate revenue in at least one country other than their home country. They have expanded rapidly in recent decades due to falling trade barriers, the search for new markets, expanding global supply chains, and outsourcing operations to lower-cost regions. They bring benefits such as job creation, infrastructure investment, and improved product quality to their host countries. However, they are also known for questionable tax practices, environmental impacts, and labour issues. Examples of MNCs include Apple, Toyota, Nestle, Exxon Mobil, and Coca-Cola.
MNCs focus on adapting their products and services to each local market. They have a clearly identifiable home country and head office, with a centralized management system. They do not share research and development (R&D) or decision-making powers with their foreign subsidiaries.
TNCs are more complex organizations that have invested in foreign operations and have a central corporate facility. However, they give decision-making, R&D, and marketing powers to each individual foreign market. Examples of TNCs include GE, Deloitte, Shell, and Accenture.
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The global economy and interconnected markets
Global corporations have taken advantage of falling trade barriers, expanding global supply chains, and outsourcing operations to lower-cost regions. They have also been able to shape the flow of capital, goods, and services, connecting the world through globalization. For instance, companies like Coca-Cola sell their products in over 200 countries, while Google has a presence in virtually every country with an internet connection.
The global economy has become highly interconnected, with financial and product markets linked across borders. The Asian financial crisis in the late 1990s demonstrated how interconnected the global economy had become, impacting not just developing countries but also threatening to engulf the West. This interconnectedness has only increased in the following decades, with nearly all countries navigating a single economic landscape.
Multinational corporations (MNCs) or transnational corporations (TNCs) have business operations and generate revenue in multiple countries. They have facilities, assets, and investments in at least one country other than their home base. These corporations have grown in number due to increasing globalization and the search for new markets. They bring benefits such as job creation, infrastructure investment, and improved product quality to host countries, but they have also been criticized for disreputable tax, environmental, and labour practices.
The responsibilities of global corporations have become a subject of debate, with discussions evolving into analyses of their environmental, social, and governance (ESG) impact. While some argue that corporations are primarily responsible to their shareholders, others emphasize the importance of ethical and socially responsible practices, including human rights and labour conditions. The ESG framework guides corporations in making decisions that balance profitability with their impact on society and the environment.
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Globalisation and international business
There are four main types of global corporations:
- International companies: These are importers and exporters, typically without significant investment outside their home country.
- Global companies: They have investments and a presence in numerous countries, tailoring their products and services to local markets.
- Multinational companies (MNCs): MNCs have operations and generate revenue in multiple countries, but their product offerings may not be coordinated across all markets. They adapt their products to local preferences.
- Transnational companies (TNCs): These are complex organisations with investments in foreign operations and a central corporate facility. However, they delegate decision-making, research and development, and marketing powers to each individual foreign market. TNCs are a type of MNC.
The emergence of global corporations has sparked debates about their responsibilities and impact on society, the environment, and their home countries. The ESG (Environmental, Social, and Governance) framework has gained traction, encouraging corporations to consider their environmental practices, social impact, and internal organisation.
The globalisation of businesses offers both opportunities and challenges. On the one hand, it can lead to job creation, infrastructure investment, and improved product quality in the countries where they operate. On the other hand, issues such as tax avoidance, labour practices, and environmental degradation have been associated with the operations of global corporations.
Overall, globalisation and international business have transformed the corporate landscape, creating interconnected markets and providing companies with opportunities to expand their reach and serve customers worldwide.
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Corporate social responsibility and ESG
Global corporations can be classified into four types: international companies, global companies, multinational companies, and transnational companies. They differ in the extent of their presence and investment in foreign markets, as well as their approaches to product offerings and decision-making.
In recent decades, the world economy has become increasingly interconnected, with financial and product markets linking countries together. This has led to a rise in global corporations, particularly multinational corporations (MNCs), which have business operations and generate revenue in multiple countries. MNCs have a significant impact on the flow of capital, goods, and services, wielding considerable economic and political influence.
As global corporations have grown in number and influence, so too has the importance of corporate social responsibility (CSR) and ESG (Environmental, Social, and Governance). CSR refers to the understanding and management of a company's positive and negative impacts on society and the environment. It involves integrating social, environmental, ethical, consumer, and human rights concerns into business strategies and operations. Public authorities, including the EU, have played a role in promoting CSR and implementing relevant guidelines and principles.
ESG is a framework that builds on the concepts of CSR, providing criteria to measure the sustainability and ethical impact of an investment or a company. It focuses on three key areas: environmental, social, and governance. ESG is used by investors to evaluate companies and make investment decisions, but it is also relevant to a broader audience, including customers, suppliers, and employees, who are concerned with a company's sustainability practices. ESG initiatives contribute to long-term business success by promoting responsible corporate management and strategies.
While CSR and ESG share similarities, they also have distinct focuses. CSR tends to be values-based, emphasizing the moral and ethical dimensions of a company's impact. In contrast, ESG takes a value-based approach, aligning with the language of investors and focusing on financial risk and corporate value creation. Despite this difference, both CSR and ESG are essential for holding global corporations accountable for their actions and ensuring they contribute to a sustainable and cohesive society.
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Frequently asked questions
A global corporation, also known as a global company or multinational company, is a business that operates in two or more countries.
Global corporations have facilities and assets in at least one country other than their home base. They have a presence in all major world markets and have globalized their financial structures and supply chains. Some well-known examples of global corporations include Coca-Cola, Hilton Hotels, Adobe, and Facebook.
Global corporations typically consist of a parent company that is headquartered in one country and has strategic control over its global operations. They have subsidiaries, branches, or joint ventures in multiple host countries, and these may operate with centralized or decentralized management.
