Comparing Foreign Corporations to Domestic Corporations and LLCs is not always as simple as one might think. There are many differences in the structure of a business, its intent, and even the jurisdiction in which it operates. Some people mistakenly believe that because an international corporation is not domiciled in its own country, it cannot commit crimes against its host country. However, even international corporations can still run into problems that may make them financially unstable or subject to extra taxation. In order to properly compare two corporations, one needs to be aware of the differences between the two and their purpose in a country.
An international corporation is one that is organized and operated by a corporation in one country with the consent of the shareholders in other countries. Most often than not, they will have a board of directors that live in different countries but remain involved in the day-to-day operations. They may have factories all over the world but only a few are located in the country of business for which they are established. There are many different types of these international corporations that can be found in the market today. Most of them are highly profitable and have different methods of operation.
A few points should be kept in mind when comparing these foreign corporations to those of domestic corporations. First, there is the issue of voting power. The shareholders in foreign corporations do not have the same voting rights as those in domestic ones. They also do not have the ability to have their products banned in some countries or to set their own rules regarding capital structure. This is the main reason as to why one should never compare the performance of one company to another that does not have the same corporation structure.
The second thing to keep in mind is the business intent of the foreign corporation. For instance, a large pharmaceutical corporation may decide to open an office in a developing country, where it can then develop drugs that it manufactures in the host country. An interesting example of this would be the pharmaceutical giant Ciba Labs, which has developed a cancer drug that is used by all of the major pharmaceutical companies in the world. In doing so, it creates a ripple effect throughout the entire medical industry because the profits from the sale of the drug are used to develop other drugs that are designed to combat the same disease that Ciba produces.
The third thing to keep in mind when comparing FDI in foreign corporations with domestic ones is the political infrastructure of the countries involved. Many countries around the world do not have advanced political systems in place. Also, many of these countries have corrupt leadership and unstable parties that have been in power for many years. There are risks associated with investing in these types of corporations. It is for this reason that companies that make direct investments in these ventures have very little room to build up their business in the beginning.
If we were to compare the political systems of the United States and India, what we would find is quite a bit of disparity in terms of their level of development. While the American government has developed an excellent system of anti-trust laws and has made sure that there are no discrimination practices against small businesses, many Indian states have no laws in place whatsoever protecting small entrepreneurs from being dominated by larger corporations. The result is that Americans who start a business that makes products for export end up having to pay very heavy taxes because they have paid too much in taxes to the government in the first place. Additionally, in India, many of the local manufacturers do not enjoy the same kind of privileges that American multinationals do. If we were to compare the profits of a pharmaceutical corporation in India versus the profits of a domestic company manufacturing products for export, we would find an enormous disparity.
By making a direct comparison between the profits earned by a corporation that operates internationally versus that of a domestic corporation that is restricted to domestic markets, you will see that there are substantial differences. When you factor in the investment costs involved, you will also see that there are significant differences between the foreign corporations that are making large profits and the domestic ones that are making much less profit. When you compare the productivity levels that are developed in the United States and that which is developed in India, you will find that the difference is enormous. The net result is that when it comes to the overall profitability of the corporation, the international corporation still comes out on top.
One of the only ways that you can ensure that you are making the most profit for your money when investing abroad is to ensure that you fully comprehend the nature of the investment that you are making. Many of the products that are produced overseas are not subject to all the same taxes that the domestic counterparts are subject to. Furthermore, many of these products are subject to none at all in the case of goods that are imported into the United States. This is something that must be clearly understood before making a decision as to where your investment dollars should be invested. When you compare foreign corporations with the American ones that have enjoyed all of these different tax advantages, you will quickly realize that there are significant differences between what the American government is willing to do to make its citizens rich and what the Indian government is willing to do to make its citizens wealthy.