Podcast
Questions and Answers
What is one advantage multinational companies have over local competitors regarding finance?
What is one advantage multinational companies have over local competitors regarding finance?
How do close relationships between banks and industrial companies benefit the latter?
How do close relationships between banks and industrial companies benefit the latter?
According to Knickerbocker's theory, how do oligopolistic firms typically respond in international markets?
According to Knickerbocker's theory, how do oligopolistic firms typically respond in international markets?
What do economies of scale refer to?
What do economies of scale refer to?
Signup and view all the answers
Which of the following is a disadvantage faced by multinationals due to capital constraints?
Which of the following is a disadvantage faced by multinationals due to capital constraints?
Signup and view all the answers
What is a source of ownership advantages for firms related to raw materials?
What is a source of ownership advantages for firms related to raw materials?
Signup and view all the answers
What does globalization emphasize in terms of economic, political, and social units?
What does globalization emphasize in terms of economic, political, and social units?
Signup and view all the answers
Which of the following describes a significant impact of economies of scale?
Which of the following describes a significant impact of economies of scale?
Signup and view all the answers
Which of the following statements represents a major debate about globalization?
Which of the following statements represents a major debate about globalization?
Signup and view all the answers
What is the effect of capital market access on large multinationals?
What is the effect of capital market access on large multinationals?
Signup and view all the answers
According to Kogut, what is a significant factor that has contributed to globalization?
According to Kogut, what is a significant factor that has contributed to globalization?
Signup and view all the answers
What has been observed regarding inequality among countries over the last century?
What has been observed regarding inequality among countries over the last century?
Signup and view all the answers
What aspect of globalization does Harvey's definition highlight?
What aspect of globalization does Harvey's definition highlight?
Signup and view all the answers
Which of the following describes a misconception regarding the historical timeline of globalization?
Which of the following describes a misconception regarding the historical timeline of globalization?
Signup and view all the answers
What key aspect is commonly debated regarding the consequences of globalization?
What key aspect is commonly debated regarding the consequences of globalization?
Signup and view all the answers
What is a significant characteristic of globalization identified by Bordo, Taylor, and Williamson?
What is a significant characteristic of globalization identified by Bordo, Taylor, and Williamson?
Signup and view all the answers
What type of investment allows a company to share ownership with another company?
What type of investment allows a company to share ownership with another company?
Signup and view all the answers
Which arrangement involves a contract for technology transfer between independent firms?
Which arrangement involves a contract for technology transfer between independent firms?
Signup and view all the answers
What term describes the challenges foreign firms face due to unfamiliar policies and cultures?
What term describes the challenges foreign firms face due to unfamiliar policies and cultures?
Signup and view all the answers
Which of the following is a characteristic of a whole subsidiary?
Which of the following is a characteristic of a whole subsidiary?
Signup and view all the answers
What is the primary focus of a strategic alliance between firms?
What is the primary focus of a strategic alliance between firms?
Signup and view all the answers
What does transactions costs theory primarily explain regarding the growth of multinationals?
What does transactions costs theory primarily explain regarding the growth of multinationals?
Signup and view all the answers
According to Coase's argument, what are firms and markets seen as?
According to Coase's argument, what are firms and markets seen as?
Signup and view all the answers
Which factor influences the decision to internalize transactions within a firm?
Which factor influences the decision to internalize transactions within a firm?
Signup and view all the answers
What can be considered a drawback of relying solely on market transactions?
What can be considered a drawback of relying solely on market transactions?
Signup and view all the answers
What can be inferred about internalization as a strategy for a firm?
What can be inferred about internalization as a strategy for a firm?
Signup and view all the answers
What can ownership advantages stimulate in a foreign investment context?
What can ownership advantages stimulate in a foreign investment context?
Signup and view all the answers
Which factor is cited as more critical for consumer goods compared to manufacturing goods?
Which factor is cited as more critical for consumer goods compared to manufacturing goods?
Signup and view all the answers
What is one way a firm can acquire ownership advantages?
What is one way a firm can acquire ownership advantages?
Signup and view all the answers
Which advantage does not relate directly to location advantages?
Which advantage does not relate directly to location advantages?
Signup and view all the answers
What does the term 'multinational corporation' specifically refer to?
What does the term 'multinational corporation' specifically refer to?
Signup and view all the answers
How does the size and income level of a host country market affect foreign investment?
How does the size and income level of a host country market affect foreign investment?
Signup and view all the answers
Which type of foreign investment involves ownership and control of assets?
Which type of foreign investment involves ownership and control of assets?
Signup and view all the answers
Which of the following can enhance a firm's operational flexibility?
Which of the following can enhance a firm's operational flexibility?
Signup and view all the answers
What distinguishes portfolio investment from foreign direct investment?
What distinguishes portfolio investment from foreign direct investment?
Signup and view all the answers
Why might a firm benefit from the possession of superior technology?
Why might a firm benefit from the possession of superior technology?
Signup and view all the answers
What is a characteristic of exporting goods or services from a home base?
What is a characteristic of exporting goods or services from a home base?
Signup and view all the answers
What role does government public policy play in the context of location advantages?
What role does government public policy play in the context of location advantages?
Signup and view all the answers
Which economist is credited with coining the term 'multi-territorial firm'?
Which economist is credited with coining the term 'multi-territorial firm'?
Signup and view all the answers
What aspect of globalization is often debated among sociologists?
What aspect of globalization is often debated among sociologists?
Signup and view all the answers
What method of foreign investment involves the establishment of completely new operations?
What method of foreign investment involves the establishment of completely new operations?
Signup and view all the answers
What is the primary focus of multinational corporations as defined in the content?
What is the primary focus of multinational corporations as defined in the content?
Signup and view all the answers
Study Notes
Chapter 1: Concepts - Multinationals and Global Capitalism
- The course is from University of Cyberjaya, specifically Business History FAMG 1003
- The chapter focuses on multinationals and global capitalism.
- Key learning outcomes include:
- Explaining the role of multinationals in creating global capitalism
- Discussing three major debates surrounding globalization
- Defining multinationals
- Explaining the impact of national culture using Hofstede dimensions
- Describing four multinationals in a broader perspective
Globalization Definitions
- Harvey (1989) views globalization as the "compression of time and space."
- Guillén (2001) defines it as a process leading to increased independence and mutual awareness among global actors.
- Bordo, Taylor, and Williamson (2001) highlight the integration of commodity, labor, and capital markets between countries as the most critical characteristic.
- Kogut (1997) describes globalization as the process of increasing integration in world civilization.
Origins and Extent of Globalization
- There are differing views on when globalization began, ranging from the decades after World War II to the 16th century or even earlier.
- Some note ancient global connections.
- Others point to specific events, like the first circumnavigation of the Earth.
Causes of Globalization
- Globalization is driven by new communication and transportation technologies.
- Government policies and actions, as well as firms, have played an important role
- These developments have raised the question of globalization's inevitability
- Historically, integration has not been a linear process, with instances like the collapse of the international economy during the interwar period.
Consequences of Globalization
- Increased inequality between countries is a generally accepted consequence of globalization.
- Concerns exist about the erosion of national sovereignty of states due to globalization.
- Sociologists debate whether mass consumerism homogenizes global culture.
Defining Multinationals
- Maurice Byé (1958) coined the term "multi-territorial firm."
- David E. Lilienthal (1960) introduced the term "multinational corporations" to describe US corporations with overseas operations.
- A multinational is a firm controlling operations or income-generating assets in more than one country.
Foreign Direct Investment (FDI)
- Multinationals engage in FDI to gain management control of assets in foreign countries.
- FDI can involve acquiring existing firms or establishing new operations (greenfield investment).
Foreign Direct Investment (FDI) Arrangements
- Equity arrangements like wholly-owned subsidiaries or joint ventures.
- Non-equity arrangements like licensing or franchising.
- Cartels are agreements between independent firms to maintain prices or limit output.
- Strategic alliances involve firms sharing facilities or cooperating on new product development.
Liability of Foreignness
- Crossing borders presents strategic and organizational challenges for firms due to dealing with unfamiliar policies, cultures, and laws, which generates a "liability of foreignness."
- The extent of this "liability" depends on the difference between the multinational's home country and the host country.
- Distance increases costs and risks.
Impact of National Culture on Business
- National culture comprises learned, shared, and transmitted values, expectations, and behaviors across generations.
- National cultures may overlap with regional and firm cultures but individual responses don't always mirror a national culture.
- Individual behavior is shaped by personality, economic status, social context, and other factors.
- Cultural values shift slowly over time, influenced by economic conditions and other external factors.
Impact of National Culture on Business - Hofstede Dimensions
- Geerte Hofstede conducted research on national cultural differences.
- He identified five dimensions : power distance, uncertainty avoidance, individualism-collectivism, masculinity-femininity, and long-term versus short-term orientation, which are important when operating globally.
Multinational in Theory - Ownership and Location Advantages
- The Heckscher-Ohlin theory, while focused on trade, assumed atomistic competition, making ownership issues irrelevant.
- Mainstream economics treats multinationals as capital arbitrageurs, moving to areas with higher returns.
- Important work by Stephen Hymer, from the MIT, introduced concepts that emphasized a firm's advantage over a host country's firm, as well as advantages from locations. This involved the transfer of proprietary technology and other resources.
Multinational in Theory - Competitive Advantages
- Competitive advantages stem from factors like access to superior technology, information, knowledge, access to finance, size of the firm, and access to raw materials.
Ownership Advantages
- These include access to superior technology, protected patents and/or knowhow, standardized technology, branding and product differentiation, superior management, and organization techniques, and access to finance.
Ownership Advantages - Access to Finance
- Multinationals often have access to cheaper capital compared to local competitors.
- Access to wider capital markets allows for cheaper funding.
Ownership Advantages - Economies of Scale
- Large firms benefit from economies of scale, giving them greater market power and cost advantages.
Ownership Advantages - Access to Raw Materials
- Control over raw material production, processing, or access to raw material markets is a significant advantage.
Ownership Advantages – Conclusion
- Ownership advantages can boost foreign investment.
- Technological and product differentiation are key advantages.
- Coordination of value-added activities across borders is essential.
Location Advantages
- Factors like the nature of the host country market(market size, growth, development, free trade agreements), tariff/nontariff barriers affect international trade, spatial distribution of resources, and government regulations influence location advantages for businesses.
Multinational Theory – Internalization and Boundaries of Firm
- Transactions costs theory suggests firms may internalize a transaction if the in-house cost of production is lower than the cost of completing the task through a market relation.
Multinational Theory – Internalization and Boundaries of Firm
- Companies internalize transactions to reduce costs associated with market imperfections, such as negotiating contracts, price discovery ,or moral hazard.
Internalization - Transaction Cost
- Specific assets (tangible, intangible) are dedicated, causing diminishing returns if used in other transactions.
- Bounded rationality (limited knowledge) and the potential for opportunistic behavior (dishonesty) complicate transactions.
Internationalization-Electric Paradigm of International Production
- The eclectic paradigm combines ownership and internalization advantages with location-specific advantages.
- Firms engage in international production if they have ownership advantages in foreign markets, perceive advantages in transferring those advantages, and benefit from locational advantages.
The Eclectic Paradigm of International Production
- Ownership advantages include intangible assets such as product innovations, organizational and marketing systems, knowledge, and human capital.
- Governance advantages offer flexibility, global sourcing, and better knowledge of international markets.
- Differences in locations, including regulations and resources, are crucial for strategic decisions.
Internationalization Incentive Advantages
- Search and negotiation costs, moral hazard, and adverse selection are avoided with internationalization.
- A company can reduce risks and enforce contracts by operating internally.
Multinational Theory - Knowledge-Based Theories of the Firm
- Firm strategies and structures create organizational strengths crucial for success in global markets.
- Localized skills and routines foster the firm's core competencies in Research and Development, manufacturing, and/or other operations.
- A firm's unique resources and competencies, particularly in localized knowledge, can be crucial competitive advantage factors.
Multinational Theory - Entrepreneurship (Neoclassical and other Perspectives)
- Entrepreneurship involves alertness to arbitrage opportunities and initiating actions to take advantage of those opportunities.
- Understanding the process of taking risks is key to understanding the entrepreneur's role.
- Different perspectives on what entrepreneurship entails—risk taking, innovating, and coordinating resources in a changing environment.
- Entrepreneurs who are aware of changing conditions in markets and/or global competition can develop advantages for firms.
Other notes
- Sahlman et al. (1999) offer a unique Harvard Business School view of entrepreneurship—the pursuit of opportunities regarding resources without regard for existing asset control.
- Entrepreneurship is often found in both start-ups and long-standing businesses and is influenced by location.
- The entrepreneurial figure is an innovator disrupting markets.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your knowledge on the advantages and challenges faced by multinational companies in a globalized economy. This quiz covers theories, capital market access, and the impact of globalization on economies, politics, and social structures. Perfect for students of international business or economics.
