What is a Global Corporation?

A global corporation is an incorporated institution that operates in more than one country. A corporation is only one type of business, but it typically has a structure conducive to international expansion. Corporations generally expand to foreign countries to sell products to more people, to hire less expensive labor or to gain easier access to natural resources. Tax laws in a foreign country can also make it a more favorable location in which to conduct business operations.

There are other types of businesses besides corporations. A sole proprietorship is a financial entity operated and owned by a single individual who is responsible for all debts 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, because they generally lack the structure necessary 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 portions of the business.

One reason a global corporation 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 corporation may turn to 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 that sought this objective.

Cheaper available labor is another motivation for a corporation to employ workers abroad. While most high-level decisions may be made in a corporation’s home country, manufacturing or labor-intensive jobs may be outsourced to less developed countries. Labor generally does not require extensive training, and therefore, the chief cost of employing labor is the hourly rate of payment. Many countries have workers who will work for less than the minimum wage rate of developed countries. The savings incurred by a global corporation that employs less expensive labor provide an economic incentive for the business to operate abroad.

Corporations may also expand globally to access natural resources with fewer obstacles than in their home countries. Developed countries often have effective laws governing the exploitation of natural resources such as petroleum, precious metals, wood and wildlife. Many other countries, which may have corrupt leaders who accept bribes, do not have such strongly-enforced laws. Despite some additional obstacles to international business, a global corporation may find it easier to mine, log or fish in other countries.