Government Intervention

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  • Created by: A92
  • Created on: 11-04-13 00:12

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Government intervention in the market economy

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Multinational Cooperation:

An MNC is a business that either owns or controls subsidiaries in more than one country,

Diversity among MNCs -

  • Size (i.e. - hybrid form of business organisation etc)
  • The nature of business - (i.e. - cover various business spectrums etc)
  • Production locations - (i.e. - either wide or narrow range of countries etc)
  • Ownership patterns (i.e. - joint ventures, shared ownership etc)
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Business Strategy in a global economy:

The global marketplace can provide massive opportunities for firms to expand and access new markets and customers etc.

Types of multinational expansion -

Businesses can look to expand either internally or externally..

  • A horizontally integrated multinational - (Same product in different countries)
  • A vertically integrated multinational - (Various stages of production take place in different countries)
  • A conglomerate multinational - (Different products in differnet countries)
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Going global to reduce costs -

  • The costs & availability of labour and other resources
  • The quality of inputs
  • Entreprenurial and managerial skills
  • Cost reductions through 'learning by doing'
  • Economies of scale
  • Reducing transaction costs
  • Transport costs
  • Government policies

In highly competitive global markets, even small cost saving could mean the difference between success and failure. This in turn highlights the importance of minimising costs.

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Going global to access new markets -

Markets would be particularly attractive to businesses where domestic growth opportunities are limited.

Expanding into new markets offers the following advantages..

  • Spreaking risks

Falling sales in one region could be effectively offset by increased sales elsewhere.

  • Exploiting competitive advantages in new markets

MNC's could use their superior technology and products to their advantage.

  • Learning from experience in diverse markets

Successful businesses will learn from their global operations, and treat each country differently.

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Problems facing multinationals:

MNC's may face a number of problems resulting from their global expansion..

  • Language Barriers
  • Selling and marketing in foreign markets (i.e. - cultural differences)
  • Attitudes of host governments (tight rules and regulations etc)
  • Communication and coordination between subsidiaries (i.e. diseconomies of scale)

The global strategy trade-off -

The trade-off between the cost reduction and local responsiveness can be a key strategic consideration for a firm to take into account when selling or producing overseas.

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Multinationals & the host state:

Advantages -

Host governements may choose to offer incentives to MNC's, as they can bring various benefits to an economy..

  • Employment - (i.e. - new factory)
  • The balance of payments - (i.e. direct flow of capital)
  • Technology transfer - (i.e. demonstration effect)
  • Taxation - (i.e. - contribute to public finances)

Disadvantages -

MNC's could have both short and long-term disadvantages..

  • Uncertainty - (i.e. - MNC's are often 'footloose')
  • Control - (i.e. - threats to withdraw)
  • Transfer pricing - (i.e. - manipulating internal pricing system)
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