1.4 What Is a Global Corporation?
One could argue that a global company must have a presence in all major world markets—Europe, the Americas, and Asia. Others may define globality in terms of how globally a company sources, that is, how far its supply chain reaches across the world. Still other definitions use company size, the makeup of the senior management team, or where and how it finances its operations as their primary criterion.
Gupta, Govindarajan, and Wang suggest we define corporate globality in terms of four dimensions: a company’s market presence, supply base, capital base, and corporate mind-set.Gupta, Govindarajan, and Wang (2008), p. 7 The first dimension—the globalization of market presenceThe degree the company has globalized its market presence and customer base.—refers to the degree the company has globalized its market presence and customer base. Oil and car companies score high on this dimension. Wal-Mart, the world’s largest retailer, on the other hand, generates less than 30% of its revenues outside the United States. The second dimension—the globalization of the supply baseThe extent to which a company sources from different locations and has located key parts of the supply chain in optimal locations around the world.—hints at the extent to which a company sources from different locations and has located key parts of the supply chain in optimal locations around the world. Caterpillar, for example, serves customer in approximately 200 countries around the world, manufactures in 24 of them, and maintains research and development facilities in nine. The third dimension—globalization of the capital baseThe degree to which a company has globalized its financial structure.—measures the degree to which a company has globalized its financial structure. This deals with such issues as on what exchanges the company’s shares are listed, where it attracts operating capital, how it finances growth and acquisitions, where it pays taxes, and how it repatriates profits. The final dimension—globalization of the corporate mind-set—refers to a company’s ability to deal with diverse cultures. GE, Nestlé, and Procter & Gamble are examples of companies with an increasingly global mind-set: businesses are run on a global basis, top management is increasingly international, and new ideas routinely come from all parts of the globe.
In the years to come, the list of truly “global” companies—companies that are global in all four dimensions—is likely to grow dramatically. Global merger and acquisition activity continues to increase as companies around the world combine forces and restructure themselves to become more globally competitive and to capitalize on opportunities in emerging world markets. We have already seen megamergers involving financial services, leisure, food and drink, media, automobile, and telecommunications companies. There are good reasons to believe that the global mergers and acquisitions (M&A) movement is just in its beginning stages—the economics of globalization point to further consolidation in many industries. In Europe, for example, more deregulation and the EU’s move toward a single currency will encourage further M&A activity and corporate restructuring.