MNC Flashcards
What is the objective of a MNC?
The most common objective of an MNC is the maximization of shareholders wealth (which
is different from earnings maximization). The MNC should make decisions just like a purely domestic
firm but considering a much wider range of opportunities, causing its decisions to be more complex.
What is the Agency problem regarding MNC’s?
some decisions taken by the MNC manager might conflict with the shareholders
wealth maximization. For example, the decision to establish a subsidiary in one location versus
another may be based on personal appeal.
Which Constraints interfere with the MNC’s objective?
- Environment Constraints
- Regulatory Constraints
- Ethical Constraints
What are motivations for international business?
- Theory of competitive Advantages
- Imperfect Markets Theory
- Product Cycle Theory
What is the theory of competitive Advantages? (What is its weakness, how to calculate it)
Each nation should
specialize in the production and export of those goods that it can produce with the
highest relative efficiency and import those goods that other nations can produce
relatively more efficiently.
These theories have become somewhat irrelevant since most core economies have
become more integrated, and differences among corporations have become
increasing more irrelevant than differences between nations.
Calculate true relative Cost in the respective domestic markets
What is the Imperfect Markets Theory?
In the real world the markets are imperfect. This makes some production factors
somewhat immobile. There are often costs and some restrictions related to the
transfer of labor and other resources. Because markets are imperfect, firms often
realize possible advantages offered by another country in terms of its resources.
This leads to incentives to seek out foreign opportunities.
What is the Product Cycle Theory
According to this theory, firms became established in the home market as a result of
some perceived advantage they would have over existing competitors. Because
information about markets and competition is more readily available at the home, a
firm is more likely to first establish itself in its home country.
Foreign demand for the product can be satisfied initially by exporting it. As time
passes, the firm may feel the only way to retain its advantage over competition in
foreign countries is to produce the product in foreign markets, thereby reducing
transportation costs.
Factors that gave Rise to MNC
- Search for Raw Materials
- Market Seeking
- Knowledge Seeking
- Cost Minimization
- Keeping Domestic Customers
- Exploit Financial Market Imperfections
What is Outsourcing
Production is outsourced to
another firm
What is Offshoring
Production offshored to
foreign subsidiary or firm
What is the combination of offshoring and outsourcing
Production done in another country by another firm
What is the bid price
price at which the investor or company (commercial bank) can sell (buy)
foreign currency.
What is the ask price
price at which the investor or company (commercial bank) can buy (sell)
foreign currency.
