Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Chapter 3 The multinational corporation Slide 3.1.

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Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Chapter 3 The multinational corporation Slide 3.1

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Multinational: a company which owns or controls production or service facilities in more than one country Extent to which a country is multinational can be measured:  Foreign asset ratio  Transnationality index Slide 3.2

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Slide 3.3 Source: Modified from UNCTAD (2010) World Investment Report 2010, Annex, Table 26

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Slide 3.4 Source: Modified from UNCTAD (2010) World Investment Report 2010, Annex, Table 26

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Cost motivations Market motivations Product life cycle motivations Slide 3.5

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Slide 3.6 Source: Modified from US BLS (2010) International Labor Statistics

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Slide 3.7 Figure 3.2 Serve domestic market only Export to overseas market(s) through independent channels (e.g. sales agents) License foreign manufacture to produce for overseas market(s) Establish sales outlet in overseas market (a) by acquiring local firm (b) by setting up new facility Establish production facility overseas (a) by acquiring local firm (b) by setting up new facility

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Time introduction growth Maturity Decline SALESSALES

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Stages/phases in the product life cycle and the switch from domestic to overseas production. NET EXPORTER NET IMPORTER New product Mature product Phase I All production In US US exports to Many countries Phase II Production Started in Europe US exports Mostly to LDCs Phase III Europe exports To LDCs US exports to LDCs displaced Phase IV Europe exports To US Europe exports to LDCs displaced Phase V LDCs export To US Europe exports to US displaced TIME

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Natural resource seeking Market seeking Efficiency seeking Strategic asset seeking Slide 3.10

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 ‘Ownership-specific’ advantages ‘Location-specific’ advantages ‘Internalization’ advantages Slide 3.11

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Slide 3.12 Figure 3.7 Marginal product of capital, home and overseas MPK K2K2 K1K1 0 Overseas country (b) A K 0 B D C F E MPK G H I J K L K3K3 K4K4 Home country (a) MPK H MPK F K

Griffiths and Wall: Economics for Business and Management 3rd edition© Pearson Education Limited 2011 Slide 3.13 Figure 3.8 Investment financed from overseas versus investment financed locally r1r1 I1I1 r 0 Q D r0r0 D’ S I2I2 I3I3

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