Chapter5 - MANAGERIAL ECONOMICS An Analysis of Business...

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1 MANAGERIAL ECONOMICS An Analysis of Business Issues Howard Davies and Pun-Lee Lam Published by FT Prentice Hall
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2 Chapter 5: The Multinational Enterprise Objectives: After studying the chapter, you should understand: 1. the definition and history of the multinational enterprise (MNE) 2. the various theories explaining MNE 3. the impact of the MNE: benefits and costs
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3 Multinational Enterprise Definition: “An enterprise that controls and manages production establishments - plants - located in at least two countries.” (Caves, 1996) Note that the MNE is involved in Foreign Direct Investment, not simply Portfolio Investment
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4 An outline history of the multinational 1. Early 19th century : Almost all European-based (e.g. British American Tobacco, Lever Brothers, Michelin and Nestle), reflected distribution of colonial influence and most were involved in backward integration into agriculture and minerals in the colonies. 2. In the 1920s and 1930s : Establishment of international cartels in many industries for global competition.
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5 3. From the 1950s to the early 1970s : Led by American firms moving into the European market (The American Challenge); research-intensive manufacturing industries. 4. In the 1970s, 1980s and 1990s : Emergence of the Japanese multinationals, “export-platform” activities in the newly- industrializing countries. More diversity; more host countries; more home countries; more in and out.
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6 Economic theory and the multinational Equi-marginal productivity of capital MP B MP A 0 A 0 B Rate of Return (%) Capital
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7 Equi-marginal productivity of capital diminishing returns to capital investment capital will flow from countries (B) with lower rates of returns to those with higher rates of returns (A) until rates of return are equal but this does not explain the MNE:owners of capital
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Chapter5 - MANAGERIAL ECONOMICS An Analysis of Business...

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