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Although the terms international, global multinational, and transnational tend to be used interchangeably, there are distinct differences. First, a domestic market is one in which a product or service is sold only within the borders of that country. Aninternational market is one in which a company may find that it has saturated the domestic market for the product, so it seeks out international markets in which to sell its product. Since international markets use their existing resources to expand, they do not respond to local markets as well as a global organization. A global organization is one in which a product is being sold globally, and the organization looks at the world as its market. The local responsiveness is high with a global organization. Amultinational is a company that produces and sells products in other markets, unlike an international market in which products are produced domestically and then sold overseas. A transnational company is a complex organization with a corporate office, but the difference is that much of the decision making, research and development, and marketing are left up to the individual foreign market. The advantage to a transnational is the ability to respond locally to market demands and needs. The challenge in this type of organization is the ability to integrate the international offices. Coca-Cola, for example, engaged first in the domestic market, sold products in an international market, and then became multinational. The organization then realized they could obtain certain production and market efficiencies in transitioning to a transnational company, taking advantage of the local market knowledge.
Global |
Transnational |
Centrally controlled operations |
Foreign offices have control over production, markets |
No need for home office integration, since home office makes all decisions |
Integration with home office |
Views the world as its market |
High local responsiveness |
Low market responsiveness, since it is centrally controlled |
|
International |
Multinational |
Centrally controlled |
Foreign offices are viewed as subsidiaries |
No need for home office integration, as home office makes all decisions |
Home office still has much control |
Uses existing production to sell products overseas |
High local responsiveness |
Low market responsiveness |
Globalization has had far-reaching effects in business but also in strategic HRM planning. The signing of trade agreements, growth of new markets such as China, education, economics, and legal implications all impact international business.
Trade agreements have made trade easier for companies. A trade agreement is an agreement between two or more countries to reduce barriers to trade. For example, the European Union consists of twenty-seven countries (currently, with five additional countries as applicants) with the goal of eliminating trade barriers. The North American Trade Agreement (NAFTA) lifts barriers to trade between Canada, the United States, and Mexico. The result of these trade agreements and many others is that doing business overseas is a necessity for organizations. It can result in less expensive production and more potential customers. Because of this, along with the strategic planning aspects of a global operation, human resources needs to be strategic as well. Part of this strategic process can include staffing differences, compensation differences, differences in employment law, and necessary training to prepare the workforce for a global perspective. Through the use of trade agreements and growth of new markets, such as the Chinese market, there are more places available to sell products, which means companies must be strategically positioned to sell the right product in the right market. High performance in these markets requires human capital that is able to make these types of decisions.
The level of education in the countries in which business operates is very important to the HR manager. Before a business decides to expand into a particular country, knowledge of the education, skills, and abilities of workers in that country can mean a successful venture or an unsuccessful one if the human capital needs are not met. Much of a country’s human capital depends on the importance of education to that particular country. In Denmark, for example, college educations are free and therefore result in a high percentage of well-educated people. In Somalia, with a GDP of $600 per person per year, the focus is not on education but on basic needs and survival.
Economics heavily influences HRM. Because there is economic incentive to work harder in capitalist societies, individuals may be more motivated than in communist societies. The motivation comes from workers knowing that if they work hard for something, it cannot be taken away by the government, through direct seizure or through higher taxes. Since costs of labor are one of the most important strategic considerations, understanding of compensation systems (often based on economics of the country) is an important topic. This is discussed in more detail in Compensation and Rewards.
The legal system practiced in a country has a great effect on the types of compensation; union issues; how people are hired, fired, and laid off; and safety issues. Rules on discrimination, for example, are set by the country. In China, for example, it is acceptable to ask someone their age, marital status, and other questions that would be considered illegal in the United States. In another legal example, in Costa Rica, “aguinaldos” also known as a thirteenth month salary, is required in December. 1This is a legal requirement for all companies operating in Costa Rica. We discuss more specifics about international laws in The International Labor Environment.
Rank |
Company |
Revenues ($ millions) |
Profits ($ millions) |
1 |
Walmart Stores |
408,214 |
14,335 |
2 |
Royal Dutch Shell |
285,129 |
12,518 |
3 |
Exxon Mobil |
284,650 |
19,280 |
4 |
BP |
246,138 |
16,578 |
5 |
Toyota Motor |
204,106 |
2,256 |
6 |
Japan Post Holdings |
202,196 |
4,849 |
7 |
Sinopec |
187,518 |
5,756 |
8 |
State Grid |
184,496 |
−343 |
9 |
AXA |
175,257 |
5,012 |
10 |
China National Petroleum |
165,496 |
10,272 |
11 |
Chevron |
163,527 |
10,483 |
12 |
ING Group |
163,204 |
−1,300 |
13 |
General Electric |
156,779 |
11,025 |
14 |
Total |
155,887 |
11,741 |
15 |
Bank of America Corp. |
150,450 |
6,276 |
16 |
Volkswagen |
146,205 |
1,334 |
17 |
ConocoPhillips |
139,515 |
4,858 |
18 |
BNP Paribas |
130,708 |
8,106 |
19 |
Assicurazioni Generali |
126,012 |
1,820 |
20 |
Allianz |
125,999 |
5,973 |
21 |
AT&T |
123,018 |
12,535 |
22 |
Carrefour |
121,452 |
454 |
23 |
Ford Motor |
118,308 |
2,717 |
24 |
ENI |
117,235 |
6,070 |
25 |
J.P. Morgan Chase & Co. |
115,632 |
11,728 |
26 |
Hewlett-Packard |
114,552 |
7,660 |
27 |
E.ON |
113,849 |
11,670 |
28 |
Berkshire Hathaway |
112,493 |
8,055 |
29 |
GDF Suez |
111,069 |
6,223 |
30 |
Daimler |
109,700 |
−3,670 |
31 |
Nippon Telegraph & Telephone |
109,656 |
5,302 |
32 |
Samsung Electronics |
108,927 |
7,562 |
33 |
Citigroup |
108,785 |
−1,606 |
34 |
McKesson |
108,702 |
1,263 |
35 |
Verizon Communications |
107,808 |
3,651 |
36 |
Crédit Agricole |
106,538 |
1,564 |
37 |
Banco Santander |
106,345 |
12,430 |
38 |
General Motors |
104,589 |
— |
39 |
HSBC Holdings |
103,736 |
5,834 |
40 |
Siemens |
103,605 |
3,097 |
41 |
American International Group |
103,189 |
−10,949 |
42 |
Lloyds Banking Group |
102,967 |
4,409 |
43 |
Cardinal Health |
99,613 |
1,152 |
44 |
Nestlé |
99,114 |
9,604 |
45 |
CVS Caremark |
98,729 |
3,696 |
46 |
Wells Fargo |
98,636 |
12,275 |
47 |
Hitachi |
96,593 |
−1,152 |
48 |
International Business Machines |
95,758 |
13,425 |
49 |
Dexia Group |
95,144 |
1,404 |
50 |
Gazprom |
94,472 |
24,556 |
51 |
Honda Motor |
92,400 |
2,891 |
52 |
Électricité de France |
92,204 |
5,428 |
53 |
Aviva |
92,140 |
1,692 |
54 |
Petrobras |
91,869 |
15,504 |
55 |
Royal Bank of Scotland |
91,767 |
−4,167 |
56 |
PDVSA |
91,182 |
1,608 |
57 |
Metro |
91,152 |
532 |
58 |
Tesco |
90,234 |
3,690 |
59 |
Deutsche Telekom |
89,794 |
491 |
60 |
Enel |
89,329 |
7,499 |
61 |
UnitedHealth Group |
87,138 |
3,822 |
62 |
Société Générale |
84,157 |
942 |
63 |
Nissan Motor |
80,963 |
456 |
64 |
Pemex |
80,722 |
−7,011 |
65 |
Panasonic |
79,893 |
−1,114 |
66 |
Procter & Gamble |
79,697 |
13,436 |
67 |
LG |
78,892 |
1,206 |
68 |
Telefónica |
78,853 |
10,808 |
69 |
Sony |
77,696 |
−439 |
70 |
Kroger |
76,733 |
70 |
71 |
Groupe BPCE |
76,464 |
746 |
72 |
Prudential |
75,010 |
1,054 |
73 |
Munich Re Group |
74,764 |
3,504 |
74 |
Statoil |
74,000 |
2,912 |
75 |
Nippon Life Insurance |
72,051 |
2,624 |
76 |
AmerisourceBergen |
71,789 |
503 |
77 |
China Mobile Communications |
71,749 |
11,656 |
78 |
Hyundai Motor |
71,678 |
2,330 |
79 |
Costco Wholesale |
71,422 |
1,086 |
80 |
Vodafone |
70,899 |
13,782 |
81 |
BASF |
70,461 |
1,960 |
82 |
BMW |
70,444 |
284 |
83 |
Zurich Financial Services |
70,272 |
3,215 |
84 |
Valero Energy |
70,035 |
−1,982 |
85 |
Fiat |
69,639 |
−1,165 |
86 |
Deutsche Post |
69,427 |
895 |
87 |
Industrial & Commercial Bank of China |
69,295 |
18,832 |
88 |
Archer Daniels Midland |
69,207 |
1,707 |
89 |
Toshiba |
68,731 |
−213 |
90 |
Legal & General Group |
68,290 |
1,346 |
91 |
Boeing |
68,281 |
1,312 |
92 |
US Postal Service |
68,090 |
−3,794 |
93 |
Lukoil |
68,025 |
7,011 |
94 |
Peugeot |
67,297 |
−1,614 |
95 |
CNP Assurances |
66,556 |
1,396 |
96 |
Barclays |
66,533 |
14,648 |
97 |
Home Depot |
66,176 |
2,661 |
98 |
Target |
65,357 |
2,488 |
99 |
ArcelorMittal |
65,110 |
118 |
100 |
WellPoint |
65,028 |
4,746 |
Source: Adapted from Fortune 500 List 2010,http://money.cnn.com/magazines/fortune/global500/2010/full_list/ (accessed August 11, 2011). |
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