Global business refers to international trade whereas a global business is a company doing business across the world. The exchange of goods over great distances goes back a very long time. Anthropologists have already established long-distance trading in Europe in the Stone Age. Sea-borne trading was commonplace in many regions of the world in times predating Greek civilization. Such trade, of course, was not by definition “global” but had the same characteristics. In the 16th century all of the continents came to be routinely linked by ocean-based communications. Trading activity in the modern sense rapidly followed at the beginning of the 17th century; it might be more accurate to say that it “returned” again because trading of such character had taken place in Roman times as well.
It is not intended here to discuss another and related subject covered separately in this volume: globalization.
Globalization is a long-standing program advocated by the economically advanced nations to free up international trade across the globe through treaties. It has also come to mean the relocation of production or service activities to places that have much lower labor costs.
Global business in the past—or currently—does not require what advocates of globalization seek, namely a so-called level playing field. International trade has always had a mixed character in which national organizations and private enterprises have both participated, in which monopolies have been imposed, frequently defended by armed forces, in which all manner of restraints and tariffs have been common and participants have made all sorts of efforts to counter such interference or to profit from it.
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Fernand Braudel, a prominent historian of commerce, describes early trading with distant points around the globe—from Europe to the Americas and from Europe to India and Asia—in what then was still called Christendom, as speculative ventures funded by highinterest loans from patrons: traders had to pay back double the money they borrowed; failure to pay the money back—unless they had been shipwrecked—meant a period of slavery until the debt was satisfied. Very high profits could be achieved trading in spices and silk with the “Indies”; such profits justified the risks. In parallel with such private trading, government-sponsored ventures also took to the oceans; they became the dominant form of international trade shortly before and all through the period of colonialism. Thus Spain exploited its discoveries in South America by shipping gold and silver from America to Europe—thus setting off a great inflationary period. Global enterprise, thus, in the modern sense, began to develop during the Age of Discovery. It was instrumental in stimulating colonialism. Single merchants or groups of explorers went forth and came back with treasures. Government-sponsored consortia, the early global businesses, followed in the adventurers’ wake.
The two earliest global companies, both government chartered, were the British East India Company begun in 1600 and the Dutch East India Company, established in 1602. Both have now passed into history. The British company dissolved in 1874, but in its nearly 300-year history it had launched and for a long period had practically run the British Empire. The Dutch company was dissolved in 1798 after nearly 200 years of operations in Asia, India, Sri Lanka, and Africa. But the Hudson Bay Company, another British-founded monopoly to exploit the North American fur trade, was established in 1670 and is still going—so much so that Canadians explain that the company’s initials stand for “Here Before Christ.” HBC has long since ceased to be a global monopoly and is known today in Canada as a department store.
Early global companies were usually state-chartered trading companies. The Danes, the French, and the Swedes all had East India companies. Japan established companies known as the sogo shosha (for “general trading company”) in the 19th century. Japan had tried and failed to preserve its isolation. When it opened itself to the world, it channeled trade through these ventures.
Great trading companies were and continue to be important in transportation as well; operating shipping supports their activities. A contemporary American example is the privately held Cargill Corporation which trades internationally in agricultural, food, pharmaceutical, and financial products.
Commodity-based international corporations emerged in the 19th century with oil. The first global oil company was Standard Oil, founded by John D.
Rockefeller. That honor was held by others since, including Exxon Corporation and Royal Dutch/Shell Group until, in the mid-2000s, Saudi Arabia’s Aramco became Number 1. Major companies in turn emerged in chemicals and in artificial fibers, in automobiles, in aircraft manufacturing, and then in virtually every industry in the second part of the 20th century.
Multinationals The term “multinationals” came into currency during the same time to designate corporations that operated in at least two different countries—but the actual use of the label applies to corporations that have a global presence. The term is used in a neutral sense simply to indicate very large size and participation in global markets. A more negative connotation of the term is that such corporations are effectively beyond the full reach of national laws because they have a presence in many locations, can move money and resources around at will, can sometimes escape taxation, and thus represent a power beyond public control.
Business Week has compiled what it labeled the “Top 100 Global Brands Scoreboard.” It gives some indication of the characteristics and distribution of multinationals.
The “scoreboard” is based on unique products (thus the “brand” label applied here) and by definition excludes some very important multinationals that operate in unbranded commodities like crude oil, grains, food products, minerals and similar categories; Phillips, British Petroleum, and Shell, for instance, make the top 100 but Aramco does not. Based on this scorecard, the U.S.
dominates the category with 53 of the 100 top brands; the U.S. also holds 8 of the first 10 spots. Others in rank order are Germany (9), France (8), Japan (7), Switzerland (5), Britain and Italy both with 4, the Netherlands and South Korea with 3 each, and Finland, Spain, and Sweden with 1 each. Additionally, one company. Royal Dutch Petroleum, is listed as both British and Dutch. The top 10, in order of brand value, are Coca-Cola, Microsoft, IBM, General Electric, Intel, Nokia (Finland), Disney, McDonald’s, Toyota (Japan), and Marlboro’s producer, Altria Group. The two largest industrial categories are electronics and software with 17 brands and autos and related with 11. As Coca-Cola with its sweet soda leads the list so Heineken with its beer closes the list in the 100th spot.
From the point of view of a seller, a global market is an export market; from the buyer’s vantage point, the global market represents imports from abroad. World statistics on international trade are collected by the World Trade Organization (WTO) located in Geneva. The most current data available in early 2006 were for the year 2004; all economic data lag the current time, but international data more so than national. In 2004, the global market for exports was $11.28 trillion, with merchandise exports representing 81.2 and commercial services 18.8 percent of that total. Merchandise exports, using WTO’s definition, include commodities as well as manufactured and semi-manufactured goods. Services are divided into transportation, travel, and the “other services” categories.
Merchandise Trade The largest category of foreign trade is in machinery and transportation equipment, representing 16.8 percent of the total—but the category pointedly excludes both automobiles and related equipment as well as office and telecommunications equipment. Fuels and Mining Products is second with 14.4 percent of share. The other major categories are Office and Telecom Equipment (12.7 percent), Chemicals (11.0), Automobiles and Related (9.5), Agricultural Products (8.8), Other Manufactured Products not already mentioned (8.6), Semi-Manufactures (like parts and components, 7.1 percent), Iron and Steel (3.0), Clothing (2.9), and Textiles other than clothing (2.2 percent).
Just ten countries around the world represent 54.8 percent of all merchandise exports. Germany led the world in 2004 with a 10 percent share of all exports, followed by the U.S. with an 8.9 percent share. Other leading exporters in order of share were China (6.5), Japan (6.2), France (4.9), the Netherlands (3.9), Italy (3.8), United Kingdom (3.8), Canada (3.5), and Belgium (10 percent of total).
At the top of world trading, anyway, the same countries were also the top importers, but not in the same order. The U.S. was top importer: 16.1 percent of all world imports were bought by U.S. consumers; Germany was second with 7.6 percent of imports. The others were China (5.9 percent), France and the United Kingdom (both 4.9), Japan (4.8), Italy (3.7), the Netherlands (3.4), Belgium (3.0), and Canada (2.9).
More interestingly, six of 10 countries achieved a trade surplus and the others had a trade deficit. The U.S. had the largest negative, a deficit of $706.7 billion, followed by the United Kingdom ($116.6 billion), France ($16.7 billion), and Italy ($1.9 billion).
Commercial Services In the export and import of commercial services, the U.S. ranked first on both sides of this ledger, representing 15 percent of exports and 12 percent of services imports—and achieved a $58.3 billion trade surplus—not enough, however, to erase its very large merchandise trade deficit. The other leading exporters of services were United Kingdom (8.1 percent of services exports resulting in a $35.7 billion services trade surplus), Germany (6.3 percent, a $59.1 billion deficit— which reduced its healthy merchandise surplus), France (5.1 percent of exports, achieving $13.1 billion in surplus, which almost wiped out its merchandise trade deficit), and Japan (4.5 percent, experiencing a $39.1 billion deficit in this category of trade).
Top U.S. Trading Partners
Trade is by its very nature a reciprocal activity. Not surprisingly, the United States’ top nine trading partners, established by adding both exports to them to imports received from them, are also in the top 15 of export and of import viewed separately. These countries are (arranged by total trade volume) Canada, Mexico, China, Japan, Germany, United Kingdom, South Korea, France, and Taiwan.
Countries that are part of the top 15 to which the U.S.
exports, in addition to those just named, are the Netherlands, Belgium, Australia, Brazil, and Hong Kong.
On the import side, in addition to the largest trade partners, the top 15 import partners include Venezuela, Malaysia, Italy, Ireland, Saudi Arabia, and Nigeria. These listings are for trade results achieved in March 2006, but looking back at intervals over several years, much the same results obtain. It is also notable that the world’s top foreign traders, discussed above, are on the U.S. list—strongly suggesting that foreign trade in noticeable volume, is between major developed industrial countries in the first instance, between neighbors in the second, and then come important suppliers of oil.
Related Parties When a company imports from or exports to a foreign-based element of its own company—to a branch, a subsidiary, or a partner—the goods or services nevertheless cross country borders and are handled as foreign trade. In 2005, 47 percent of all U.S. imports were from “related parties” and 31 percent of exports went to such entities. These ratios have been fairly steady over time; the import ratio in 2001 was the same and the export ratio just one percentage point higher. Related party trading is, of course, an indirect measure of globalization—especially the rather high import percentage: it shows that companies are importing goods made by themselves, most likely in lower labor-cost markets, for sale domestically.
Balancing The Trade
In the grand scheme of international trading, a balance in trade has always been the rational goal of sovereign states.
Balanced trade means that exports will be the same as imports, one balancing the other. Exports generate the currency with which imports must be bought. A country that persistently experiences trade deficits slides into debt or dependency on foreign investment—the current situation of the U.S. The United States has experienced trade deficits continuously since 1971; it has been able to sustain its way of life only because of foreign investment here.
Current trends point to continued and ever-growing trade deficits. The only bright spot in the picture is a trade surplus in the commercial services export category.
Such surpluses, however, would have to increase 12-fold (based on 2004 data) before they erased the merchandise trade deficit. The other alternatives open are as yet invisible innovations that lead to the creation of new, proprietary exports no one else can match—or a drastic diet of consumption so that imports take a dive and exports can catch up. The future will tell which way the problem will be resolved.
See also: Globalization