Introduction
Ruigrok and van Tulder claimed that large companies who perform operations globally are, in fact, not truly global (159). This statement was made more than 20 years ago when international relations and trade were on a completely different level than they are now. Yet, the general rules of internationalization remain basically unchanged. In this paper, it will be argued that this statement is still true, with arguments drawn from real-world examples, theory and practice of global economic exchange, formal business structures, and company policies, both at home and abroad.
The Definition of True Internationality
Since the discussion involves using a somewhat ambiguous term, there is a need to define it within the framework of the current paper. Cavusgil et al. define a global company by juxtaposing it with a multinational corporation (MNC) (712). According to these authors, a global company establishes planning and allocation of resources on a global rather than national basis. A paradigm that distinguishes a global company implies a certain distance from the acquisition of profit only for a certain number of national beneficiaries and thinking more about the financial health of all its 3centres. A share of profit that is made through multinational operations is also a defining characteristic of a global company. In addition, such an organization does not depend on a single production and supply center, rather it has equal or close to equal production capabilities in all regions of interest. Standardized products that comply with national requirements and a highly coordinated decision-making structure are also essential elements of a global company.
The extent of globalization is measured through the assessment of corporate, marketing strategies, structure, culture, management, and leadership. Cavusgil et al. identify several companies, such as Unilever, Coca-Cola, and Nestle, who seem to have moved farther than other companies from being an MNC to becoming a truly global company (712). Yet they also possess certain structural and managerial flaws, such as dependence on their home region.
In addition, being global means being able to fit into almost any market, which is a difficult task that requires the amount of flexibility that is not yet common to the majority of companies. Financially, it is sometimes easier not to do business in a particular country than to adapt to its laws, norms, and standards. Currently, there seems to be no company that operates in each and every country of the world.
Real-World Examples
It is true that many corporations who choose to extend the network of their operations to foreign countries enjoy larger profits and yield global popularity. However, often internationalization means selling products to other countries, while the majority of production, R&D, marketing, and governance functions remain within the borders of the home state. Many car producers, such as BMW, Volkswagen, Mitsubishi, and Toyota generate the majority of their revenue from foreign sales. However, this does not make their global companies. At best, it makes them benefactors of, and players on, foreign markets. One of the main reasons for that is that a corporation is rarely established as a large entity with partners abroad. In most cases, the creation and growth of a company is a gradual process that occurs in only one place simultaneously.
Tesla Inc., for instance, started as a car producer primarily for the American car market. Their cars require a stationary charging device that substantially limits the sales to regions where infrastructure for electric cars is available. Today, the company sells electric vehicles abroad, in particular to European countries and certain parts of Asia. It has sales offices in the UK, Germany, France, Italy, and Beijing. However, the internationalization of the corporate structure in Tesla remains at a basic level. Apart from sales offices, the company remains a U.S. taxpayer. Its head office is in California and all production facilities are in Nevada. Most of the workforce is also employed within the U.S. Therefore, on account of only selling products to foreign customers, the company cannot be called global.
There are companies whose level of internationalization is higher. Burger King, for instance, has a different operational model. Franchise agreements let business people from abroad open a fast-food restaurant anywhere in the world. Most of the business functions, such as logistics, distribution, management, and technical services are established within the country where products are sold. About 40 international subsidiaries, consisting of local and American employees, manage the operations in specific countries or world regions. However, research and development, marketing department, and head management are all still located in Miami, Florida. On the one hand, the company has a high degree of adaptability to local culture, norms and standards of conducting business, and legislation. Its operations are not based on any country, in particular, as food manufacturers, logistics companies, and management are all local.
On the other hand, the trademark is strongly associated with American culture. In addition, standards of service, the main menu, and marketing strategies are fully controlled by the corresponding departments of Head Office in the U.S. The board of directors consists primarily of Americans. Its key shareholders are also from the U.S. Therefore, the extent of the company’s international status is highly limited.
Unilever is one of the closest companies that one could call global. It produces a variety of fast-moving consumer goods. It has two headquarters, in London and Rotterdam, and several research, development, and production facilities across the world. Formally, it recognizes diversity, equality, and other global human values. The nature of their products aligns best with the idea of a global business. However, the company has certain difficulties in complying with local and international laws. Thus, according to Amnesty International, Unilever has been involved in multiple environmental and child labor scandals in relation to their production facilities in developing countries (“The Great Palm Oil Scandal”). It was also reported that Unilever subsidiaries were involved in legally-unauthorized deforestation of rainforests (Neslen). This seems to be the major control problem and commitment to their seemingly universal policies that do not permit Unilever to be regarded as truly global.
Theory and Practice of Global Economic Exchange
The global economy appears to be the total contribution of all countries to the exchange of goods and services offered by countries to one another, measured in universally-accepted international currency worth (Shenkar et al. 45). International agreements between countries and coalitions foster global trade and allow large, medium or small-sized companies to access the markets of other countries. Large companies, as demonstrated above, form national entities that seek to enter other markets in an attempt to avoid competition at home and make additional profit. By initiating international trade, they create a flow of goods, services, and capital in multiple directions.
However, this process alone does not make such companies truly global as they are only acting as participants in global processes. The ‘globality’ in the context of economic exchange means the creation and sharing of value, not only within the borders of a single state. The rules of international exchange open or close the borders for trade in certain countries, yet they never completely erase them. Countries could cooperate to bridge their differences and simplify their national trade rules for foreigners. They could also complicate or simplify exchange but the actors of the process retain their national identity as they originally emerge from a particular country. There seem to be no international goods. Each recognized product appears to be associated with a certain country through a company, even if it was produced elsewhere.
Even if a company receives a foreign direct investment, it does not become international per se. It only sells to a person or an entity a right to have certain control over the company’s decision-making process. In a situation where total control is gained through a merger or acquisition procedure, the company-owner has two options. They either retain the brand name and corporate governance, providing only visionary and financial help, or they completely erase its identity, making it a local subsidiary. In either scenario, neither the merged nor acquired company, nor the company-owner, becomes international in its true sense.
Formal Business Structure
The organizational or formal structure of many organizations seems to be one of the key factors that prevent companies from becoming truly global. Since companies mainly originate from a certain country and are established by their citizens, the set of corporate values, business ethics, and the legal and corporate structure of the company become predetermined. The gradual development of the character of a company within the borders of its home country also lays a foundation for its business structure. Most importantly, it defines the actual authority within the organization. Should the company become an MNC and engage in operations across the globe, it still retains the same chain of command; the board, or directors, and the CEO, who take all important decisions regarding the present and the future of the organization. In case a company opens a subsidiary in another country, it usually continues to make decisions in accordance with its domestic authority’s instructions or policies.
This internal rigidity of decision-making and the inherent value of headquarters draws a natural borderline between an MNC and a global company (Hirst et al. 68). The national affiliation of the key people in the management and governance of the company seems to define the national identity of the company. While a truly global corporation is indifferent to any particular national market in terms of having a sentimental connection, an MNC is likely to suffer unsustainable damage if it faced domestic bankruptcy. It is highly doubtful that Mcdonald’s would continue to operate in other countries if all the restaurants in the U.S. would suddenly close.
Policies at Home and Abroad
Operations in foreign markets require any company to comply with local laws, corporate ethics, and norms. The success of the foreign company in such markets often depends on how well it can integrate and deal with those factors. A truly global company can potentially integrate the conditions of any nation without stepping away from its core values, corporate structure, ethics, and norms. Yet it is doubtful that the multifaceted nature of the world and the variety of laws, ethics, and norms can be totally covered by a universal business model. The practices that prosper in the U.S. might fail in Russia or China. The mere necessity to adapt undermines the capacity of a company to be truly global and universal. The variety of cultural and legal practices sometimes makes it impossible to establish valid corporate social responsibility (CSR) mechanisms in national branches.
Companies who try to win over local markets do so mostly by the means of the product, while CSR does not always work. An Asian or Arab environment that is unique and diverse from a European one poses almost insurmountable difficulties in understanding, which forces foreign companies to hire local employees and management. Such a subsidiary nominally becomes local in all that concerns day-to-day operations, while the mentality of the owners and their understanding of CSR remain unchanged.
The mere entrance to the market requires a company to make amendments to policies. For instance, in China, a foreign company cannot enter the local market without the permission of the government. It also has to have personal connections with owners of Chinese firms and have local partners in order to start a business. In light of this, it is sometimes of little significance whether your company rules are nation-based or flexible. Some countries require altering them even more, which produces a cultural barrier and prevents companies to become truly global and integrative.
Conclusion
There seem to be no firms that correspond to the criteria of a global business. Even the most advanced and flexible MNCs seem to exhibit behaviors that do not let them become truly global. A variety of local cultural barriers, inability to assert effective control over local production, high regard for the domestic market, and people’s association of a brand with a country seem to prove the statement of Ruigrok and van Tulder right.
Works Cited
Cavusgil, S. Tamer, et al. “The Framework of a Global Company: A Conceptualization and Preliminary Validation.” Industrial Marketing Management, vol. 33, no. 8, 2004, pp. 711-716.
Hirst, Paul, et al. Globalization in Question. John Wiley & Sons, 2015.
Neslen, Arthur. “Pepsico, Unilever And Nestlé Accused of Complicity in Illegal Rainforest Destruction”. The Guardian, 2017. Web.
Ruigrok, Winfied, and Rob Van Tulder. The Logic of International Restructuring. Taylor and Francis, 2013.
Shenkar, Oded, et al. International Business. Routledge, 2014.
“The Great Palm Oil Scandal.” Amnesty International, 2016, Web.