Government Intervention
- 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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