Lec 10: firms and their environment (ch23)
Terms in this set (16)
Businesses that own and control foreign subsidiaries in more than one country
Assets owned by the firm - such as technology, product differentiation and managerial skills - which reflects its core competencies
Those features of a host economy that MNCs believe will lower costs, improve quality and/or facilities greater sales
Where the net benefits of extending the organisation structure of the MNCs by setting up an overseas subsidiary are greater than those of arranging a contract with an external party
Horizontally integrated multinational
A multinational that products the same product in many different countries
Vertically integrated multinational
A multinational that undertakes the various stages of production for a given product in different countries
A multinational that produces different products in different countries
The replacement of imports by domestically produced goods or services
Where a host state benefits from the new technology that an MNC brings with its investment
A model that relates a country's rate of economic growth to the proportion of national income saved and the ratio of capital to output
The shortfall in savings to achieve a given rate of economic growth
Foreign exchange gap
The shortfall in foreign exchange that a country needs to purchase necessary imports such as raw materials and machinery
The process of globalisation can have profound effects on economies. One current feature of globalisation is the relocation of various services and knowledge-based jobs from developed to developing countries
There are various drivers of globalisation, including market, cost, government and competitive drivers
Supporters of globalisation point to its potential to lead to faster growth and greater efficiency through trade, competition and investment. It also has the potential to draw the world closer together politically.
Critics of globalisation argue that it contributes to growing inequality and further improvements poor nations. It also ends national cultures and can have adverse environmental consequences
Foreign direct investment (FDI)
FDI tends to fluctuate with the ups and downs of the world economy.
One theoretical explanation of MNC development is the product life cycle hypothesis. In this theory, a business will shift production around the world seeking to reduce costs and extend a given product's life. The phases of a product's life will be conducted in different countries. As the product nears maturity and competition grows, reducing costs to maintain competitiveness will force businesses to locate product in low-cost markets, such as developing economies
A more modern approach to explaining international production and MNC development is provided by the eclectic(折衷的) paradigm. According to this approach, firms have certain ownership-specific advantages (core competencies), such as managerial skills, product differentiation and technological advantages, which they can use in the most appropriate locations. They internalise their ownership-specific advantages and engage in FDI because the costs and risks are lower than licensing an overseas firm or using an import agent (i.e. engaging in an external market transaction)
Although becoming an MNC is largely advantageous to the business, it can experience problems with language barriers, selling and marketing in foreign markets, attitudes of the host state and the communication and coordination of global business activities
MNC bring developing countries with investment, which is crucial to economic growth. They also provide the host state with foreign exchange, which might be crucial in helping purchase vital imports.
MNC might prove to be disadvantageous to developing economies if they drive domestic producers out of business, source production completely from other countries, repatriate(遣返) profits, practise transfer pricing to avoid tax, force host states to offer favourable tax deals or subsidies for further expansion, and guard technology to prevent its transfer to domestic producers.
Host states find multinational investment advantageous in respect to employment creation, contributions to the balance of payments, the transfer of technology and the contribution of taxation
Host states find multinational investment disadvantageous in so far as it creates uncertainty: foreign business can control or manipulate the country or regions within it; tax payments can be avoided by transfer pricing; and MNCs might minuses the environment