MNEs 2 Presentation

8/12/2019 MNEs 2 Presentation

1/15

SOME ANALYTICAL ISSUES

PRESENTED BY: SAFIA ASLAM


2/15

Multinational enterprises play an importantrole in promoting and shaping the patterns ofeconomic development and this role iseffected by means of their foreign directinvestment (FDI) decision.

in order to understand how the decisions

made by MNEs affect the economicdevelopment, it is necessary to understandthe problem of where and how the MNEchooses to locate its investment.


3/15

To explain to regional scientists and economicgeographers the foundations of the analyticalapproaches that are adopted by international

business economists and management theoristswho are working on MNEs location problem.

IB and management analysis of MNE locationbehavior provides fundamental challenges as tohow economic geographers and regionalscientists consider the problem of industriallocation.


4/15

In order for future location theory that isappropriate for analyzing MNEs at the

regional level to develop, it is necessary toexplicitly incorporate the Williamson andDunning themes into location analysis.


5/15

MNE firms operates in an explicitly uncertainenvironment in which it has to continuously

confront the market versus hierarchydilemma, whereby the firm has to decide tocoordinate complex production and supplyactivities primarily via market mechanism orvia an internal planned organizational anddecision making system.


6/15

Multinational activities are driven by threesets of advantages.

Ownership advantages location advantages

internalization advantages

It is the particular configuration of these sets

of advantages that either encourages ordiscourages a firm from undertaking foreignactivities and becoming a MNE.


7/15

Ownership advantages are firm-specificadvantages may be described as the competitivestrength of the company, either production

based or marketing based. Advantages: associated with the size of firms

such as economies of scale or productdiversification, management of organizationalexpertise, ability to acquire and upgraderesources, product differentiation, marketingeconomies and access to domestic markets.


8/15

Location advantages are country specificadvantages defined as the national factorendowments of a nation basically the variables

in its aggregate production function. Advantages: input cost such as low wages and

availability of cheap natural resources, laborproductivity, size and character of markets,transport costs, tariff barriers, taxationstructure, risk factor, attitude towards FDI,structure of competition.


9/15

Internalization advantages posits that MNEs grows byreplacing imperfect external markets by internal ones.

Key imperfect market is the pricing of proprietary

knowledge includes firms R&D operations,managerial experience, new production techniques,production differentiation and market knowledge.

In order to profit from investment in knowledgedevelopment, the firm internalizes knowledgeproduction, using its internal hierarchy to monitor andcontrol its use in a way that the market is unable todo.


10/15

First, the challenge to the IB literature is that theL component of OLI paradigm must bedisaggregated in more detailed geographical

terms. Second, the regional economics and economic

geography literatures must develop a moresophisticated micro-approach to analyzing thegeographical behavior of MNE.

Third, the IB literature must develop anunderstanding of how the decision-makingbehavior of MNE firm is related to the issues ofgeography and locations.


11/15

In the case of MNE, the attractiveness of somelocations lies in the fact that they can providethe MNE with valuable resources in the form of

good infra structure, both physical and human. These locations may also be able to provide the

firm with valuable opportunities for learningfrom other leading firms through intentional andunintentional knowledge inflows.

Another possible factor contributing toclustering in certain highly R&D intensiveindustries is the presence of leading researchuniversity in the region.


12/15

It is not clear from porter logic when an MNEfirm should not locate in a particular

industrial cluster. In other words, what is the balance between

the costs of locating in a cluster and theopportunity costs of not locating there?


13/15

In IB literature three distinct types ofindustrial clusters can be defined according to

the nature of firms in the cluster and thenature of relations and transactions withinthe cluster.

These types are: Pure agglomeration

Industrial complex

Social network


14/15

Pure agglomeration Industrial complex Social network

Firm size atomistic Some firms are large Variable

relationships Non-identifiable,fragmented, unstable

Identifiable, stabletrading

Trust, loyalty, jointlobbying, jointventures, nonopportunistic

Membership Open, Closed, Partially open,

access to cluster rental payments,location necessary

internal investment,location necessary

history, experience,location necessarybut not sufficient

Space outcomes Rent appreciation No effect no rents Partial rentalcapitalization

Notion of space urban Local but not urban Local but not urban

Example of cluster Competitive urbaneconomy

Steel or chemicalproduction complex

New industrial areas


15/15

In order to discuss MNE location at regional level it isnecessary to discuss each of the OLI features.

International business literature needs to discussgeography in much more detailed manner

The economics geography and regional science literaturemust discuss questions of firm organization andinternalization in a manner which has previously not beenundertaken.

MNE location decisions require a detailed consideration of

the relationship between different types of informationinternalized and transmitted by the firm, the way ofinformation mediation and transmission and criticalgeographical extent over which such informationtransmission takes place.

Documents

MNEs 2 Presentation