A global business is for-profit corporation that operates in more than one country. Many goods and services are sought by people all around the world, and a single company can often provide these more efficiently than many local companies can. There are a set of obstacles to establishing a global business, however. There have also been negative reactions to the expansion of certain businesses to international markets.
Businesses are usually headquartered in a home country and have branches in other nations, called host countries. Management of the business’s large-scale operations is often done at the headquarters location. Offices in host countries typically focus on selling products and services in that country only. If a global business needs a lot of manufacturing labor, though, this work may be done in poorer countries where low-cost labor is widely available.
Many consider the Dutch East India Company to be the first global business. The company was founded in 1602 in Amsterdam, Holland, to administrate colonial trade in Asia. It enjoyed monopoly status, or very little economic competition, for much of its history. Its operations were met with hostility by some indigenous groups, however. Corruption eventually hindered operations of the Dutch East India Company, and it was bankrupt by 1798.
Many businesses have expanded into global markets since the end of the Second World War. Relative political stability, improved transportation, and the advent of the digital age have all helped to remove traditional obstacles to opening up global businesses. This process of expanding business into global markets is sometimes called globalization. Like with the Dutch East India Company, globalization can have negative effects on some populations. The process of extending business operations around the world has been met with much criticism over the years.
The oil industry involves numerous global businesses today. This is called an inelastic demand and is one reason to establish a global business. People around the world depend on oil for their daily lives, and this makes oil companies very confident that their goods will be purchased if they expand into new countries.
One boundary to establishing a global business is cultural diversity. It doesn’t do a company much good to advertise a product in a language that local people don’t speak. One company had some difficulty selling their toothpaste products in Spanish-speaking countries because a word in their company name had a derogatory meaning in Spanish. Not considering local culture can unintentionally offend residents in a host country. This can result in loss of profits, or even hostile reactions against a global business.
Another hindrance—or advantage—in creating a global business is that different tax codes exist in different host countries. For example, Phillip Morris International sells cigarettes in more than 160 countries. Taxes on cigarettes can vary widely from country to country; they are generally high in Western Europe, but are low in other regions. The local tax code affects the end price of products on the market, and in turn, affects profits enjoyed by businesses.