eco sem 2 mcom

7/25/2019 ECO SEM 2 mcom

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INTRODUCTION

A multinational corporation(MNC) or enterprise(MNE),is a corporation or an enterprise that

manages production or deliers serices in more than one countr!" It can also #e re$erred to as

aninternational corporation" The International %a#our Organisation (I%O) has de$ined an MNC

as a corporation that has its management head&uarters in one countr!, 'non as the home

country, and operates in seeral other countries, 'non as host countries"

The Dutch East India Compan! as the $irst multinational corporation in the orld and the $irst

compan! to issue stoc'" It as also argua#l! the orlds $irst megacorporation, possessing &uasi*

goernmental poers, including the a#ilit! to age ar, negotiate treaties, coin mone!, and

esta#lish colonies"

The $irst modern multinational corporation is generall! thought to #e the East India

Compan!" Man! corporations hae o$$ices, #ranches or manu$acturing plants in di$$erentcountries $rom here their original and main head&uarters is located"

+ome multinational corporations are er! #ig, ith #udgets that eceed some nations

-D.s Multinational corporations can hae a poer$ul in$luence in local economies, and een the

orls econom!, and pla! an important role in international relations and glo#alisation"

MAR/ET IM.ER0ECTION+

It ma! seem strange that a corporation can decide to do #usiness in a di$$erent countr!, here it

does not 'no the las, local customs or #usiness practices" 1h! is it not more e$$icient to

com#ine assets o$ alue oerseas ith local $actors o$ production at loer costs #! renting or

selling them to local inestors2

One reason is that the use o$ the mar'et $or coordinating the #ehaiour o$ agents located in

di$$erent countries is less e$$icient than coordinating them #! a multinational enterprise as an

institution"The additional costs caused #! the entrance in $oreign mar'ets are o$ less interest $or

the local enterprise" According to 3!mer, /indle#erger and Caes, the eistence o$ MNCs is

reasoned #! structural mar'et imper$ections $or $inal products" In 3!mers eample, there are

considered to $irms as monopolists in their on mar'et and isolated $rom competition #!

transportation costs and other tari$$ and non*tari$$ #arriers" I$ these costs decrease, #oth are

$orced to competition4 hich ill reduce their pro$its"The $irms can maimi5e their 6oint income

#! a merger or ac&uisition, hich ill loer the competition in the shared mar'et" Due to the


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trans$ormation o$ to separated companies into one MNE the pecuniar! eternalities are going

to #e internali5ed"3oeer, this does not mean that there is an improement $or the societ!"

This could also #e the case i$ there are $e su#stitutes or limited licenses in a $oreign

mar'et" The consolidation is o$ten esta#lished #! ac&uisition, merger or the ertical integration

o$ the potential licensee into oerseas manu$acturing" This ma'es it eas! $or the MNE to en$orce

price discrimination schemes in arious countries" There$ore 3!mer considered the emergence o$

multinational $irms as 7an (negatie) instrument $or restraining competition #eteen $irms o$

di$$erent nations7"

Mar'et imper$ections had #een considered #! 3!mer as structural and caused #! the deiations

$rom per$ect competition in the $inal product mar'ets"0urther reasons are originated $rom the

control o$ proprietar! technolog! and distri#ution s!stems, scale economies, priileged access to

inputs and product di$$erentiation"In the a#sence o$ these $actors, mar'et are $ull! e$$icient" The

transaction costs theories o$ MNEs had #een deeloped simultaneousl! and independentl! #!

McManus (89:;),


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ill almost ala!s include one or more o$ the U+, @apan or EU) that has the most rigorous

standards" As $or la#or costs, hile MNCs clearl! pa! or'ers in, e"g" ietnam, much less than

the! ould in the U+ (though it is orth noting that higher American productiit!Blin'ed to

technolog!Bmeans that an! comparison is tric'!, since in America the same compan! ould

pro#a#l! hire $ar $eer people and automate hateer process the! per$ormed in ietnam ith

manual la#our), it is also the case that the! tend to pa! a premium o$ #eteen 8 and 8 on

local la#or rates" 0inall!, depending on the nature o$ the MNC, inestment in an! countr! re$lects

a desire $or a long*term return" Costs associated ith esta#lishing plant, training or'ers, etc",

can #e er! high4 once esta#lished in a 6urisdiction, there$ore, man! MNCs are &uite ulnera#le

to predator! practices such as, e"g", epropriation, sudden contract renegotiation, the ar#itrar!

ithdraal or compulsor! purchase o$ unnecessar! licenses, etc" Thus, #oth the negotiating

poer o$ MNCs and the supposed race to the #ottom ma! #e oerstated, hile the su#stantial

#ene$its that MNCs #ring (ta reenues aside) are o$ten understated"

MARKET WITHDRAWAL


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LOBBIN!

Multinational corporate lo##!ing is directed at a range o$ #usiness concerns, $rom

tari$$ structures to enironmental regulations" There is no uni$ied multinational perspectie on

an! o$ these issues"

Companies that hae inested heail! in pollution control mechanisms ma! lo##! $or er! tough

enironmental standards in an e$$ort to $orce non*compliant competitors into a ea'er position"

Corporations lo##! tari$$s to restrict competition o$ $oreign industries" 0or eer! tari$$ categor!

that one multinational ants to hae reduced, there is another multinational that ants the tari$$

raised" Een ithin the U"+" auto industr!, the $raction o$ a compan!s imported components ill

ar!, so some $irms $aor tighter import restrictions, hile others $aor looser ones" +a!s El!

Olieira, Manager Director o$ the MCTIRF This is er! serious and is er! hard and ta'es a lot

o$ or' $or the oner"

Man! industries such as -eneral electric and


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eco sem 2 mcom

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