certain location Example Vietnam has emerged as a convenient location for MNEs

Certain location example vietnam has emerged as a

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certain location. Example: Vietnam has emerged as a convenient location for MNEs that want to diversify away from coastal China due to rising labor costs. From a resource-based view, an MNE’s pursuit of ownership and location advantages can be regarded as flexing its muscles—its resources and capabilities— in global competition. exporting and importing) with one firm (the MNE) locating and operating in two or more countries. The institution-based view suggests that markets are governed by rules, regulations, and norms that are designed to reduce uncertainties. internalization is a response to the imperfect rules governing international transactions —known as market imperfections (or market failure ) 1. Advantages: Remember the key word of FDI is D (direct) and it requires a significant equity ownership position. The benefits of ownership lie in the combination of equity ownership rights and management control rights. In contrast, FPI represents essentially insignificant ownership rights but no management control rights 2. FDI over Licensing a. FDI reduces dissemination risks b. FDI provides tight Agglomeration- Clustering of economic activities in certain locations Advantages: → certain locations specialize in different things Knowledge spillovers: knowledge being diffused from one firm to others → creates a skilled labor force that can move firms without shifting location Ex. Denmark is good @ air turbines ***Location advantages refer to the advantages one firm obtains when operating in one location due to its firm-specific capabilities Oligopoly: an industry characterized by a small number of players Firms copying ***Uncertainty increases transaction costs Many firms choose not to do business abroad for fear of getting “burned” → Thus, high transaction costs can result in market failure ** The potential for opportunism on both sides is what makes it costly MNEs combat this market failure Essentially, it is easier to own assets in other countries and carry out your business there than to deal with the costly and more risky import and export model intrafirm trade:International transactions between two subsidiaries in two countries
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control over foreign operations c. FDI facilitates the transfer of tacit knowledge through “learning by doing” i. Explicit knowledge: codifiable (i.e., it can be written down and transferred without losing much of its richness) ii. Tacit knowledge: is non- codifiable and its acquisition and transfer requires hands-on practice technology created by other firms is likely in this environment controlled by the same MNE. Political ties to FDI: Radical view: the radical view treats FDI as an instrument of imperialism and as a vehicle for exploitation of domestic resources by foreign capitalists and firms the free market view suggests that FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods and services.
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