Chapter 8: Multinational Corporation
(F) Day of the week: Wednesday Class: IS302 Created Time: January 13, 2021 2:38 PM Database: Class Notes Database Date: January 13, 2021 2:38 PM Days Till Date: Passed Last Edited Time: June 9, 2021 10:42 AM Type: Lecture
Multinational Corporation (MNC): are companies/corporations that operates in more than one country.
1. History
FDI: firm based in one country build new factory in a second country.
MNCs Grew rapidly until 2010
FDI also increased
Locational Advantage
Why firms internationalize activites? Aquiring inputs and selling outputs in foreign markets.
- Locational Advantages: specific countries has better certain opportunities than others
- Large reserve of natural resources: oil ore and gas
- Large local market:
- that have growth potential
- low competition
- over trade barriers produce inside the country
- Opportunity to enhance efficiency of firm’s operation
- Labor abundant countries (cheap labor)
3. Market Imperfection
when price mechanism fail to promote welfare improving transactions
Horizontal Integration:
Vertical Integration:
4. Effects on Host Country
What MNC provide to host country
- FDI: national savings aren’t enough to grow market
- Economic Stability: stable growth from large and reliable companies, no bubbles to burst
- Transfer of Technology: creates personal extraneities transfer of technology creates non-excludable benefit for all companies regardless of their involvement of the transfer
- Better procedures: more efficient and better process for managing companies
Chapter 9: the politics of multinational corporation
MNC must also be regulated in countries
Regulating MNCs in Developing World
- See mnc with unease
- see mnc as neo colonialism from past colonial powers
- Mostly primary commodities exporters (post war)
- 1960s move to manufacturing
Concerns
- Foreign ownership of natural resources
- Economic dominance behind foreign market
They respond to MNCs by regulating them rather than shutting them down
- protecting sectors
- protecting local shareholders
- Protecting their local market by restricting FDI significantly
Regulating MNCs in advanced industrialized coutnries
more open to FDI less inclined to regulate them
- Exclude foreign firms from owning industries that are critical to the nation
bargainign with MNCs
MNCs having exclusive control of things like naturla resources, capital the more bargaining power it has
- Natural resources industries: MNCs has bargaining power at first as they have capital, skills, tech, to utilize it
- The natural resouces will become obsolete as the country develops however
Low skilled labor intensive manufactring industries
- MNCs have bargaining power
- picking between potential hosting country
- Isn’t obsoluteing bargain power
- Easily moved
- growing competition betwee nhost coutnries, lower cost
The Interanatioanl Regulation of MNCs
There is no multilateral regime govenring FDI and MNCs internationally
4 legal principles governing FDI
- Treat foreign investment private property at least the same as domestic private property
- IT can regulate the FDI if it concerns the countries soveriegnty
- must repay FDI for meddling with it
- FDI can call on origin coutnry in a dispute wiht host country