Multinational Corporations

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Question 1:
As Multinational Corporations (MNCs) have become a growing force in world trade they have attracted supporters and critics. Briefly discuss the arguments put forward by both sides. Explain how the WTO Organisation assists in managing world trade.

Advantages and disadvantages of MNC’s:
• MNC’s impact on host country:
• Capital Formation (money which comes into the country)
• Technology transfer
• Regional and sectoral development
• Internal Competition and Entrepreneurship
• Favorable Effect on Balance of Payment
• Increased Employment
• Offering a wider product range

MNC’s impact on host country:
• Industrial dominance (keep buying the other companies)
• Exploitation of raw materials and cheap labour
• Bribery and corruption
• Interference in political matters
• Technological dependence
• Disturbance of economic plans of the country
• Cultural change, change of lifestyle
• Interference by home government through MNC
• Degree of government control may be less than intended

The home country perspective:
• Improves Gross Domestic Product via repatriation of profits, royalties and fees • Increases export opportunities
• Political advantages
• Job losses
• Net effect on imports & exports
• Creating competitors

Main goals:
• To promote trade flows by encouraging nations to adopt non-discriminatory predictable trade policies. • To reduce remaining trade barriers through multilateral negotiations • To establish impartial procedures for resolving trade disputes between members. • To encourage Free trade

• Promoting fair competition
• Encouraging development and economic reform
• Trade without discrimination
• Predictability through binding and transparency

Different Agreements:
• General Agreement on Trade in Services (GATT)
• Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) • Trade Related Investment Measures (TRIMS) Agreement

Question 2:
What are the three options that a firm can use to get its New Caledonian specialty “South pacific beauty care” products to international markets. Explain the benefits and risks of each option. Which would you chose and why?

• Avoids cost of establishing manufacturing operations in the host country • Helps the business achieve international experience (Experience Curve) • Can enter markets more rapidly
• Greater control over sale of product and associated marketing and distribution • Less risky than Foreign Direct Investment
• Sales growth/ increased market
• Opportunity to dispose of excess capacity
• Opportunity to diversify sales

• Costs associated with finding foreign distributors and satisfying international customers • May be lower cost locations for manufacturing the product abroad • Barriers to trade can make it uneconomical or difficult to sell abroad • High transport costs may reduce profitability of sales

• Distributors/Agents may sell a competitor’s product, so there may be a question of loyalty

• Less risk to environmental influences
• Less need for capital, personnel
• Avoid barriers to exporting
• May create opportunities for long run penetration of foreign markets • Often leads to associated exports
• May contribute to the effectiveness of other foreign operation methods • Can be used to service residual markets
• Can lead to reciprocal arrangements such as cross-licensing and imports and cooperation in 3rd markets • Can assist in funds transfer and lower taxation

• Loss of control over quality
• May create a competitor
• Secrecy
• Method of payment?
o What currency?
o When and how?
o Royalty based so how to identify correct sales
• Short term instead of long-term
o Limited involvement/ commitment
• Some loss of control of the foreign market
• Some loss of control of...
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