Global corporations expand into foreign countries to reach new markets, hire cheaper labor, and access natural resources. Sole proprietorships and partnerships lack the necessary structure for global expansion.
A global corporation is an incorporated institution that operates in more than one country. A corporation is just one type of business, but it typically has a structure conducive to international expansion. Companies typically 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 in which to conduct business.
There are other types of businesses besides corporations. A sole proprietorship is a financial entity managed and owned by a single individual who is responsible for all debt incurred by the business. A partnership is similar to a sole proprietorship, but is jointly owned by several people. Neither sole proprietorships nor partnerships are likely to operate globally, however, as they generally lack the necessary structure for large-scale investment and growth. A corporation, on the other hand, has a separate legal personality from its owners and may allow shareholders to own parts of the business.
One of the reasons a global company may 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 domestic market has been fully exploited, a company can turn to an untapped market in another country. An American and European cell phone company that sells its products to other parts of the world is an example of a global company that has sought this goal.
Cheaper labor is another motivation for a company to employ workers overseas. While most high-level decisions can be made in a company’s home country, manufacturing or labor-intensive jobs can be outsourced to less developed countries. The job typically does not require extensive training, and therefore, the primary cost of employing the job is the hourly rate of pay. Many countries have workers who will work for less than the minimum wage in developed countries. The savings incurred by a global company employing cheaper labor provide an economic incentive for the company to operate overseas.
Companies can also expand globally to access natural resources with fewer barriers than in their home countries. Developed countries often have effective laws regulating the exploitation of natural resources such as oil, precious metals, wood and wildlife. Many other countries, which may have corrupt leaders who take bribes, don’t have laws as strongly enforced. Despite some additional hurdles to international business, a global company may find it easier to mine, register or fish in other countries.
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