A company engages in international business when it conducts any business functions beyond its domestic borders. What kinds of business activities might make a company international? The most apparent activity, of course, is international sales. When a company produces in its own country and sells in another, it engages in the simplest level of international activity. However, as you will see in much more detail later in the book, crossing national borders opens up more international options than simply selling internationally.
In this text, we refer to any company engaging in international business as a multinational company or MNC. This is a broad definition, which includes all types of companies, large and small, that engage in international business.
Most multinational companies, however, are also multinational corporations— the companies are publicly owned through stocks. Most often, when you see references to MNCs in the popular business press, the reference is to multinational corporations. The largest multinationals are all public corporations. Exhibit 1.1 lists the top MNCs in the world.
Smaller MNCs are often privately owned, but many of their business activities may be conducted outside their own country. Smaller, non-public MNCs are also becoming increasingly important as it becomes more common for smaller organizations to compete globally. Some entrepreneurs create businesses that go international from the start. To introduce some of the international options, consider the following hypothetical company that produces PCs.
As a domestic-only company it can manufacture the chips and other electronic components, build the cases, assemble the components and sell the computers, all in its home country.
However, the firm might not be able to compete successfully using this approach. The local market may be stagnant, with competitive pricing and lower profit margins. Even in a growing market, competitors like Dell Computer might source high-quality, low-cost components from anywhere in the world. Competitors might also find lower production costs in low-cost countries, allowing them to offer lower prices. What can this company do?
As an MNC, the firm might sell PCs to overseas buyers in countries with less competition and higher prices. Several other international activities might increase its competitive strength. For example, this company might locate any of the steps in obtaining components or completing production in other countries. It might buy the highest-quality chips from Taiwan, use the lowest-cost assemblers in Vietnam, and sell primarily in Europe and the US. For any of these steps, the company might outsource the activity to local companies in another country or own its own factories within another country. As you will see in later chapters, MNCs must develop strategies and systems to accomplish all or some of these international business tasks.