International Companies

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 circumstances 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.