Multinational enterprise (MNE) - Company that has operating subsidiaries located in foreign countries
Transnational corporations - Managed at a global perspective rather than from the perspective of a single country
GLOBALIZATION AND CREATING VALUE IN THE MULTINATIONAL ENTERPRISE
Building firm value (generating profit and value for shareholders) requires combining 3 elements: (1) an open marketplace (2) Strategic management (3) access to capital
An open Marketplace:
Allows free movement and competition of labor, capital, technology, and innovation of entrepreneurship.
Strategic Management:
Discover business opportunities, design, develop and execute a corporate strategy through all levels of management.
Access to Capital
Ability of the enterprise to reach out and obtain resources from outside of the firm to pursue the firm’s vision and create the value
THE THEORY OF COMPARATIVE ADVANTAGE
Each country specializing in products for which it possessed absolute advantage and produce more for less and exchange products for the items they needed
Governments interfere with comparative advantage for a variety of economic and political reasons, such as to achieve full employment, economic development, national self-sufficiency in defense related industries and protection of an agricultural sector’s way of life.
Factors considered in the location of production facilities worldwide include:
Local and managerial skills
Dependable legal structure for settling contract disputes
Research and development competence
Educational levels of available workers
Energy resources
Consumer demands for brand name gods
Mineral and raw material availability
Access to capital
Tax differentials
Supporting infrastructure (roads, ports...etc)
Terms of trade are determined by supply and demand, but the process by which the terms are set are determined partly by administered pricing in oligopolistic markets
It takes a relative advantage in costs, not just an absolute advantage, to create comparative advantage.
Global Outsourcing = A procurement strategy in which a business seeks to find the most cost efficient location for manufacturing a product, even if the location is in a foreign country.
Main differences between a multinational enterprise and a domestic is: political risk, foreign exchange risk and corporate governance
MARKET IMPERFECTIONS: A RATIONALE FOR THE EXISTENCE OF THE MULTINATIONAL FIRM
Imperfections in the market for products translate into market opportunities for MNEs
Reasons why firms become Multinational (motivators):
Market seekers - Produce in foreign markets either to satisfy local demand or to export to markets other than their home market (i.e. automobile manufacturers)
Raw material seekers - Extract raw material wherever they can be found.
Production efficiency seekers - Produce in countries where one or more of the factors of production are underpriced relative to their productivity.
Knowledge seekers - Operate in foreign countries to gain access to technology or managerial expertise.
Political safety seekers - Establish new operations in countries that are considered unlikely to expropriate or interfere with private enterprise.
Above motivators are subdivided into (2):
Proactive investments - Designed to enhance the growth and profitability of the firm.
Defensive investments - Designed to deny growth and profitability to the firm’s competitors.
THE GLOBALIZATION PROCESS
Globalization Process - The structural and managerial changes and challenges experienced by a firm as it moves its operations from domestic to global
Corporation moves from the domestic phase to international trade (INTERNATIONAL TRADE PHASE)
Own its own distribution and production facilities and owns assets and enterprises in foreign countries (MULTINATIONAL PHASE)
Limits to Financial Globalization - Limit/Impediment: the growth in the influence and self-enrichment of organizational insiders. (increase of insiders interest to increase personal wealth rather than organizational value)
You May Also Find These Documents Helpful
-
“Comparative Advantage” is one of the most essential items and concepts in international trade. This concept, Comparative Advantage, focus on the idea that one country is more capability, better resources, and has distinct advantages in producing one good or service in comparison to another country. The goods or services being produced has a much lower opportunity cost compared to production or manufacturing from another country. For example, South Africa has a comparative advantage the United States in mining diamonds, based on their natural resources in comparison to the United States.…
- 1004 Words
- 5 Pages
Good Essays -
Capstone Encyclopedia of Business (2003) defines, “the transnational firm is a network of specialized or differentiated units, with attention paid to managing integrative linkages between local firms as well as with the centre. The subsidiary becomes a distinctive asset rather than simply an arm of the parent company. Manufacturing and technology development are located wherever it makes sense, but there is an explicit focus on leveraging local know-how to exploit worldwide opportunities” (Para. 7).…
- 1270 Words
- 6 Pages
Powerful Essays -
Develop a strategic plan to advance the company's mission and objectives and to promote revenue, profitability, and growth as an organization.…
- 1566 Words
- 7 Pages
Powerful Essays -
Comparative advantage has the power to evaluate the opportunity cost given up for the production of one product to the other as long as both countries can gain from a trade. In comparing corn and cheese, it showed the comparison of the benefit by reducing production on cheese and the quantity change in a bushel of corn. While both products can be produced in the same country, it was proven that corn had the comparative advantage over cheese. Reducing the labor from producing cheese to better the labor in producing one more bushel of corn had a higher productivity level at a lower opportunity…
- 1096 Words
- 5 Pages
Better Essays -
International trade is based on having a comparative advantage. Countries produce products that are easier for them to produce, then other countries. A country having an advantage, can come from many different factors, availability, natural resources, relative efficiency of factors of production, and the state of technology. Each country offer a different set of advantages, like labor, land, capital, and entrepreneurship. If a country has a strong labor intensive work force, and has fertile soil, and a good climate suitable for growing, that country will excel, and have an advantage of producing agricultural goods.…
- 1417 Words
- 6 Pages
Better Essays -
Here are some hypothetical numbers used to illustrate the ideas of trade-offs, specialization, and comparative advantage. Assume Sri Lanka, using all her resources efficiently, can produce either 1,000 bags of rice OR 3,000 bags of tea. Let's also assume that, using all her resources efficiently, Kenya can produce either 1,000 bags of rice OR 1,000 bags of tea. Further, assume that the countries have similar resource endowments and that, initially, they are not trading with each other. Therefore, each of the countries has to produce both rice and tea for its citizens. Suppose that, in the no-trade situation, Sri Lanka was consuming 400…
- 1009 Words
- 3 Pages
Powerful Essays -
Here are some hypothetical numbers used to illustrate the ideas of trade-offs, specialization, and comparative advantage. Assume Sri Lanka, using all her resources efficiently, can produce either 1,000 bags of rice OR 3,000 bags of tea. Let's also assume that, using all her resources efficiently, Kenya can produce either 1,000 bags of rice OR 1,000 bags of tea. Further, assume that the countries have similar resource endowments and that, initially, they are not trading with each other. Therefore, each of the countries has to produce both rice and tea for its citizens. Suppose that, in the no-trade situation, Sri Lanka was consuming 400 bags of rice and 1,800 bags of tea, and in the no-trade situation, Kenya was consuming 500 bags of rice and 500 bags of tea.…
- 354 Words
- 2 Pages
Good Essays -
A transnational company is one that spreads out their operations in many countries, sustaining to higher levels of local responsiveness than would likely be received by a multinational company which identifies itself with one national home and then maintains foreign subsidiaries.…
- 747 Words
- 3 Pages
Good Essays -
When each of two parties has an absolute advantage over the other in producing a particular good or service, it is easy for both to decide their areas of specialization. But what happens when one party' can produce both goods and services more effi¬ciently than a second party? Should the party with the absolute advantage produce both products for itself? Although this party has the advantage in producing cither good, it should specialize in producing the good in which it has a comparative advantage. Comparative advantage is the ability to produce a good or service at a lower opportunity cost than other producers facc. 1’his means lerting the other party produce the good in which it has the lower opportunity cost. Total output will be greater, and exchange will allow both parties to have both goods.…
- 500 Words
- 2 Pages
Good Essays -
Which goods the country should specialize on should be monitored by the law of comparative advantage, which states that: the country with the lowest opportunity cost of producing a particular good should specialize in producing that good. By specializing on a certain good, a country lowers the opportunity cost of that good by forgoing production of other goods. For example: Say country A has an absolute advantage in producing cars as well as paper, and the opportunity cost of producing 1 car is 3 tons of paper. Country B however, produces 1 car at an opportunity cost of 6 tons of paper. If these two countries specialized according to comparative advantage, country A produces 2 cars whilst country B produces 12 tons of paper. Therefore, country B should concentrate on solely producing paper and hand over the…
- 491 Words
- 2 Pages
Good Essays -
Comparative advantage theory addresses when a country has abundance in trade. “According to theory of comparative advantage, a country has a comparative advantage in the production of a good or service that it produces at a lower opportunity cost than the others” (Salvatore, 2005, p. 33). In other words, the benefits of a country that is low-producing a good or service would benefit as a country to specialize in producing that good or service and compare with the production of other goods or services.…
- 990 Words
- 4 Pages
Good Essays -
“Globalization” is a popular term that originated in the 1980s to describe the process of increased interconnectedness among nations, through the movement of people, information, investments and goods across national borders. The presence of Trans-national Corporations (TNCs) in many economies today has sped up the process of globalization and the impacts of TNCs is a hotly debated issue now. From an economic viewpoint, TNCs bring about more benefits than negatives to host nations and I will be illustrating this in the remaining part of my essay by bringing in TNCs like Nestlé, Nike, Monsanto and Walmart, just to name a few.…
- 1383 Words
- 6 Pages
Powerful Essays -
Growing old and losing the ability to function independently is inevitable. Aging is a part of life. As adults grow old, they need increased assistance with daily living skills. The elderly may need assistance with finances, cooking, washing clothes, and cleaning. However, many Americans are not only aging but also acquiring dementia. In a recent study from the funded by the National Institute of Health (NIH), revealed that approximately 3.8 million people in the United States have some type of dementia National Institute of Neurological Disorders and Stroke. (2001). Dementia affects the ability to cognitively function and can severely affects a person in the late stages. Dementia is medically categorized into stages. Each stage is intakes important decision making. As they regress and get older, they step into further stages of dementia which entails more decision making. The decision making process affects the patient and their families. It is always important to make ethical decisions that are well planned and are at the best interest for the patient. We will be evaluating, analyzing and applying four ethical principles in the decision making process for patients with dementia.…
- 1039 Words
- 5 Pages
Good Essays -
In this essay I will describe how a firm’s resources limit its search for opportunities. I will also provide two examples of how a firm’s resources may be limited by its opportunities. Firms may be limited by strengths and weaknesses of their available resources due to lack of one or more combinations of the following sources: production capabilities, cost(s) of research, marketing, management, and available or dedicated finances (Perreault, W.D, Cannon, J.P, & McCarthy, E.J., 2010). In order for a firm to determine if it has the resources to expand on new opportunities, they must have a variety the sources mentioned above. Firms must first establish the direction and what market(s) that they want to pursue and target (Perreault, W.D, et. al, 2010). Once a firm has an idea of the targeted market and products/services they wish to offer they can move forward to the next step of establishing new opportunities.…
- 339 Words
- 2 Pages
Good Essays -
Chapter 3: Evaluating a Company’s External Environment Chapter 4: Evaluating a Company’s Resources, Capabilities, and Competitiveness…
- 485 Words
- 2 Pages
Satisfactory Essays