Why Perform Businesses Internationalise?
1 . Why do businesses internationalise? Compare and contrast mainstream and alternative theories. (Firms look for, efficient, inexpensive, productive locations)
MNE – multinational organization
Neoclassical Control Theories
Heckscher-Ohlin's Factor Endowments:
A statistical model, It predicts patterns of operate (production and consumption) relying on a country's factor endowments. Factor endowments include land, labour and capital. The amounts of these kinds of vary between countries. Products differ according to the types of things used to generate them. Argued that a region should foreign trade those items that intensively use those resources that are relatively abundant in that country.
However provides poor predictive power.
Assumes ideal competiton
Suggests all firms are similar (does not account for industry imperfections)
New Trade Theory
- Successful outcome vertical fragmentation of production around several counties: Efficiency and equilibrium centered
Labour in developing counties
Developed countries focus on capital intensive components
- Different assumptions to clarify international production of horizontally type: identical products located in countries at similar stage of expansion (ie created countries) (R& D and cost of transportation)
Economies of scale, early entrance obtain lock upon world industry, discourages entry
Mainstream Foreign Business Ideas
Transaction Price Theory:
Firms count on authority and hierarchy, market segments rely on exchange Firms can be found as markets fail in transactions costs become way too high Firms reduce transaction costs through imposition of expert
Fixing failure – Monopolistic or perhaps Oligopolistic
It is based on the ‘first fundamental theorem' of well being economics: " a competitive market economic system can give surge to a Pareto optimal allowance of methods (a situation where no-one can become best without somebody else becoming more serious off)
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