International Companies Definition
The definition of international companies is nearly trivial, but it contains some key aspects. We define an international company as a company that invests in one country or home country but participates in trade relationships with other countries. This is a highly important definition and should be considered carefully.
An international company is a company that is based in one country, generally called the home country of the company, where it imports and exports to the international markets.
This definition contains some vital points. For example, international companies are located in one origin country, and their only relationship with cross-national trade is importing and exporting. Therefore, these companies don’t invest in other countries. This is profitable from the perspective of the costs of management. On the other hand, this may cause international countries to have a lack of understanding of markets across countries.
This lack of understanding can be problematic since the products of international companies are not always adapted specifically for the markets. Different markets may have different cultural understandings and tastes about the product.
Fig. 1 - A container ship.
In addition to the varying tastes and cultures of different markets, they also present their own regulations. The complexity of the international markets contains parallels to the complexity of countries’ diplomatic relationships and their own economic structure.
These diplomatic relationships can significantly affect the configuration of the market mechanisms. For example, some countries may impose sanctions, tariffs, and quotas on international trade. In a globalized world, these sanctions can cause alarming economic fluctuations. These regulations, if they are applied as a restriction, can decrease the quality of life in a country. They also can decrease trade flows of international products and services or, in some cases, completely cease them.
Aside from international relationships, some countries may want to avoid international trade in certain fields. If a country believes that international trade is affecting the market negatively in a sense that is related to the market dynamics, it may impose regulations or protections. The range of regulations and protections varies, and there are many ways to conduct such applications. International companies can face momentous costs due to such regulations.
Purpose of International Companies
The purpose of an international company is similar to any other company; maximizing its utility. On the other hand, unlike other companies, international companies focus on the perks of international trade and maximize their utility with the advantages of oversea markets.
So what are these advantages that fuel the purpose of international companies? Obviously, there can be many gains from international trade. Nonetheless, it is better to cover them in a more robust and broad sense. We can go over these as follows.
In the beginning, we can say that one of the main purposes of an international company is to increase its demands. Increased demands can cause increased profits. This is rather intuitive, but new markets and opportunities will increase the already existing demand.
In addition to increased demand, trading internationally can be a way to escape domestic competition. If the domestic market contains similar products to a company’s product, selling the product in a different country can guarantee the demand that the firm needs. On the contrary, this can also cause fluctuations and increase the competition in the country where exports are happening. One prominent example of this is dumping. Dumping is when the price of the exported goods undermines the prices in the domestic market, then the domestic industries within a country that imports the goods can suffer from this new competition.
Another important benefit of trading internationally is minimizing the risk of economic downturns. This is rather similar to portfolio management made by individuals in stock markets. If a country suffers economically, diversified investments can protect these types of economic downfalls. On the other hand, we should keep in mind that due to globalization, economic downturns in a country may affect markets globally.
Finally, internal markets may provide a response with a delay to currency fluctuations. While currency fluctuations are happening, international companies can earn revenues due to the exchange since their response rate is rather quicker.
Examples of International Companies
We can find many examples of international companies. On the other hand, we should keep in mind that the terms international and multinational companies may be stretched a bit. In real life, big companies may present more complex relationships with reality rather than strict definitions. Therefore, before giving examples, we can create some abstractions to draw a picture of how an international company looks.
Let us remember the basic assumptions of an international company. We know that a company can be an international company under two strict rules. The first rule is that a company should import or export goods within international markets. This is rather expected for an international company. These can be the import and export of goods and services. Especially importing unprocessed material is common in the contemporary era.
Our second strict assumption states that an international company can not own investments in different countries, unlike multinational companies. This means that country can not own any type of facility outside of its borders. For example, a multinational company may have different investments across the globe. This creates an advantage since facilities can adapt to circ*mstances and a country’s cultural differences.
According to the given assumptions, an international company becomes easy to illustrate.
Let us assume a small local company. This company is a paper producer and owns two factories within a country’s borders. After some time, the company realizes the intense competition in the domestic market. Nonetheless, at the same time, it also realizes that there exist many opportunities across borders where competition is relatively lower than at home. Therefore, the company decides to sell the paper to stationery suppliers in a country abroad. Without any investment abroad, the company can indeed sell these goods. This company is an example of an international company. It has no investments abroad and still exports paper for consumption.
Fig. 2 - A paper company
Many technology companies work in this fashion. They do not differentiate their product according to market structures outside their borders. Their headquarters are located in one country, and they just export services and goods. If you buy operating system software in one country, it will be nearly the same except for a few language modifications.
Difference Between Multinational and International Company
The difference between an international and a multinational company can be found in their network structure. It is needless to say that both strategies contain some benefits and shortcomings. In this section, we will go over some differences between these structures.
The fundamental difference between international and multinational companies arises due to their network structure. An international company does not have any investments outside of the country that it is located. They focus on imports and exports for international trade. On the other hand, a multinational company has many investments outside of the country where they are mainly located. This difference causes many structural differences.
For example, multinational companies can adapt their goods to a targeted market. This is rather impossible for international companies since their commodities and services are originated from one place. This may affect sales since every country has different cultural differences, which are reflected in the market structure. Multinational companies can obtain knowledge about a market due to their regional branches.
These regional branches are also the cause of increased costs. Managing regional branches is a costly action. Therefore, multinational companies require more investment than international companies in the context of management. On the other hand, their transportation costs of raw materials or final goods are significantly less than international companies. This is rather logical since their raw materials are obtained from regional sources. If local branches can produce, this also decreases transportation costs drastically.
Finally, multinational companies can hire new employees overseas. If the country where the regional branch is located is labor abundant, there is a high chance that the wage rates will be lower in that country. This structure also decreases the costs of production factors for that country.
International Blue Chip Companies
International blue chip companies are the most successful representatives of international companies. Therefore it is highly important to understand their structures to grasp the underlying mechanisms of a successful international company. In this section, we will go over the fundamental aspects of international blue-chip companies.
The key point in blue chip international companies is their stability and size. Due to their size and stability, they offer certainty. In the investment world, certainty is a synonym for lower but stable revenue. These firms offer stable growth in periods.
Another important aspect of these firms is their resilience towards economic changes. International companies are generally more resilient to local economic shocks than local firms. Nonetheless, this is not just the only liability of the blue chip companies. Most of the blue-chip companies have billions of dollars of savings. Therefore, their downfall is highly unlikely. This is the other reason why investors trust these companies.
Finally, these companies have a strong presence in the competitive market. Their accumulated wealth and innovations grant them a strong position in the market, and their overthrow from the throne is highly unlikely without a ground-breaking innovation.
International Companies - Key takeaways
- International companies are companies that are located in one country, and without investing overseas, they contribute to international trade with imports and exports only.
- International companies depend on a wide variety of markets, gaining competition overseas for gaining profit abroad.
- Technology companies that produce software are an example of international companies.
References
- "Container ship Olga Maersk" by L2F1 is licensed under CC BY 2.0.
- "The wet end of the two high speed paper machines at the Tasman Pulp and paper Company Limited Mill at Kawerau, Bay of Plenty." by Archives New Zealand is licensed under CC BY 2.0.
Frequently Asked Questions about International Companies
What is the meaning of an international company?
Aninternational company is a company that is based in one country, generally called the home country of the company, where it imports and exports to the international markets.
What are multinational companies examples?
Most clothing companies and fast food chains are multinational companies. They are located in one center, but they also have branches outside of the home country’s borders.
What are 3 examples global companies?
The top ten oil companies are global companies. They are located in one headquarters, but they also have a strong presence outside of their home country’s borders.
What is the purpose of international companies?
The purpose of an international company is similar to any other company; maximizing its utility. On the other hand, unlike other companies, international companies focus on the perks of international trade and maximize their utility with the advantages of oversea markets.
What is difference between multinational and international company?
The fundamental difference between an international company and a multinational company arises due to their network structure. An international company does not have any investments outside of the country that it is located. They focus on imports and exports for international trade. On the other hand, a multinational company has many investments outside of the country where they are mainly located.
What is the difference between local and international companies?
Local companies produce goods and services for the country’s market where they are located and invested. International companies produce goods and services in the country where they are located, but they can export these goods, and they also import other goods produced in different countries.
