Global corporations operate in multiple countries to reach new markets, employ cheaper labor, and access natural resources. Sole proprietorships and partnerships lack the necessary structure for global expansion. A corporation has a separate legal personality and may allow shareholders to own parts of the business.
A global corporation is an incorporated institution that operates in more than one country. A company is just one type of business, but it usually has a structure conducive to international expansion. Companies often expand into foreign countries to sell products to more people, hire cheaper labor, or gain easier access to natural resources. Tax laws in a foreign country can also make it a more favorable place to conduct business operations.
There are other types of businesses besides companies. A sole proprietorship is a financial entity owned and operated by a single person responsible for all debts incurred by the business. A partnership is similar to sole proprietorship, but is jointly owned by multiple people. Neither proprietary companies nor partnerships operate globally, however, because they often lack the necessary structure for large-scale investment and growth. A corporation, on the other hand, is given a legal personality separate from its owners and may allow shareholders to own parts of the business.
One reason a global corporation might decide to operate in new countries is to reach new markets. The population of most countries is small compared to the world population. Once a home market has been fully tapped, a corporation can tap into an untapped market in another country. An American and European cell phone company that sells its products in other parts of the world is an example of a global corporation pursuing this goal.
Cheaper available labor is another motivation for a corporation to employ workers abroad. While most high-level decisions can be made in a corporation’s home country, industrial or labor-intensive jobs can be outsourced to less developed countries. Labor generally does not require extensive training, and therefore the main cost of employing labor is the hourly rate of pay. Many countries have workers who work for less than the minimum wage in developed countries. The savings generated by a global corporation employing cheaper labor provide an economic incentive for the company to operate abroad.
Companies can also expand globally to access natural resources with fewer obstacles than in their home countries. Developed countries often have effective laws that govern the exploitation of natural resources such as oil, precious metals, timber, and wildlife. Many other countries, which may have corrupt leaders who take bribes, do not have laws as strongly enforced. Despite some additional obstacles to international business, a global company may find it easier to mine, mine or fish in other countries.
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