Two major developments have quickly changed the corporate environment since the turn of the century: globalization and technology. In order for a company to really dominate its market, it needs to be savvy in at least these two areas. Often, it is the largest firms that are best equipped for market dominance worldwide, and these companies have set the stage for others to follow.
McDonald’s leads the way
McDonald’s Corporation (NYSE:MCD) has catered to mostly low- and middle-class families throughout America since 1940. Now the company operates in 119 countries. As part of the fast-food chain’s focus on expanding throughout the globe, it looks at the wage developments in nations where it wants to do business.
For example, in China the average annual income per person has climbed from $16 annually to about $2,000 today. Many of those who work in sweatshops now earn around $4 per day, which is an increase from the pennies that they were once earning.
Middle-class Chinese people have sold their bicycles and now own cars or motorcycles. In the home, they now often own televisions. And China is just one example of the type of standard of living increase that is being experienced in many nations throughout the world. McDonald’s Corporation (NYSE:MCD) has seen this as a major point of interest as it aims to expand its business globally.
But McDonald’s Corporation (NYSE:MCD) broadens its thinking when doing business in other countries. The restaurant chain recently inked a deal with Sinopec, which is a massive Chinese gasoline retailer. The companies aim to work together to build drive-through McDonald’s restaurants that are attached to the gas stations on new Chinese roads.
Starbucks followed
After seeing McDonald’s Corporation (NYSE:MCD) success in China, Starbucks Corporation (NASDAQ:SBUX) followed suit and now owns 254 stores in the Asian country. The coffee shop even has a store at the Great Wall and at the Forbidden Palace. But as profits at American companies operating in China surge, do their ethics come into question? Workers at Starbucks Corporation (NASDAQ:SBUX) are paid about $6 to work eight hours. It should be noted, however, that those working at a tea house owned by a Chinese firm earn about $3.75 for a 12-hour day.
Lattes at the Chinese Starbucks Corporation (NASDAQ:SBUX) cost about $2.85, so it appears there is enough demand for Starbucks to make a stellar profit margin, as long as the company continues to take advantage of a lack of employment laws and the wide divide between rich (who can afford the drinks) and the poor (who are desperate enough to work for the company) increases. If information about global business practices of American companies rises as fast as globalization, companies such as Starbucks Corporation (NASDAQ:SBUX) might be set to lose profits if they have to start paying higher wages.
Apple enjoys bite of global market
Apple Inc. (NASDAQ:AAPL) employs about twice as many jobs overseas as the company does in America. The tech company created about 4,750 jobs in the Philippines alone, and many others were initiated elsewhere throughout the world. While Apple Inc. (NASDAQ:AAPL) hasn’t outright stated why the vast majority of its employees are overseas, the company does pay $320 million abroad, and $750 million domestically. Case and point.
In May, Apple CEO Tim Cook appeared before Congress to testify about Apple Inc. (NASDAQ:AAPL)’s tax rate in relation to overseas profits. Apple’s international sales flow through it’s subsidiary Irish holding company that is only taxed 2% by that nation’s government. The move is not illegal, but Michigan Senator Carl Levin called it shameful. Cook said the arrangement is meant to minimize the firm’s burdens, adding that repatriating taxes should be in the single digits. Most senators appeared to sympathize with Apple Inc. (NASDAQ:AAPL)’s Irish-tax arrangement.
Summary
Apple’s activities and others’ shows there is an alluring component to doing business overseas. Cheap labor is certainly a draw (and many of these workers are making much more than they would for an average local company). Working with wealthy foreign companies is also a draw, such as the joint venture recently agreed to between McDonald’s Corporation (NYSE:MCD) and Sinopec.
The opportunities offered by globalization are numerous, but it is getting to the point where a company needs to go international if it wants to dominate its sector. This is important, because any good investor wants the company in which they invest to realize maximum growth.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Apple, McDonald’s, and Starbucks. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL), McDonald’s Corporation (NYSE:MCD), and Starbucks Corporation (NASDAQ:SBUX).
The article Globalization Is Essential for Market Dominance originally appeared on Fool.com.
Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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