Get Your International Business Terms Right

Last Updated Aug 20, 2007 7:14 PM EDT

Strategies of International BusinessDon't make the mistake of calling a company global when it's really just international -- or even worse, saying a company is multinational when it's really transnational! For convenience, it's common to use the umbrella term international business to describe business activities that extend past the borders of a company's home country. But international business analysts (like superstar Michael Porter) have a more precise vocabulary to describe varying foreign activities. Here's a summary list of the important categories:
  • International companies have no foreign direct investments (FDI) and make their product or service only in their home country. In other words, they're exporters and importers. They have no staff, warehouses, or sales offices in foreign countries. The best examples of international companies, in the strict sense, are exotic retail shops that sell imported products, or small local manufacturers that export to neighboring countries.
  • Multinational companies cross the FDI threshold. They invest directly in foreign assets, whether it's a lease contract on a building to house service operations, a plant on foreign soil, or a foreign marketing campaign. Generally, though. Multinational companies, however, have FDI only in a limited number of countries, and they do not attempt to homogenize their product offering throughout the countries they operate in -- they focus much more on being responsive to local preferences than a global company would.
  • Global companies have investments in dozens of countries but maintain a strong headquarters in one, usually their home country. Their mantra is economies of scale, and they'll homogenize products as much as the market will allow in order to keep costs low. Their marketing campaigns often span the globe with one message (albeit in different languages) in an attempt to smooth out differences in local tastes and preferences.
  • Transnational companies are often very complex and extremely difficult to manage. They invest directly in dozens of countries and experience strong pressures both for cost reduction and local responsiveness. These companies may have a global headquarters, but they also distribute decision-making power to various national headquarters, and they have dedicated R&D activities for different national markets.
In the world of eCommerce and virtual business, it becomes more difficult to stick any particular company squarely into a category. At that point, it's more helpful to categorize a company by its intention or strategic focus, rather than its actual operations.

(Plot of International Business Strategies adapted from Charles Hill)