International FActor Movements & MNE's

8 important questions on International FActor Movements & MNE's

Multinational Enterprises (MNEs)

A Multinational Enterprise is a company producing and selling products in more than one country. Such a company is also called a “multinational corporation” or a “transnational corporation”.

Foreign Direct Investment (FDI)

· Parent company obtains sufficient common stock in a foreign company to assume voting control
· Parent company acquires or constructs new plants and equipment overseas
· Parent company shifts funds abroad to finance an expansion of its foreign subsidiary
· Earnings of the parent company’s foreign subsidiary is reinvested in a plant expansion.

Motives for Foreign Direct Investment (FDI)

· Opening markets to foreign direct investment
· Higher rates of private investment
· Economic growth and job creation
· Generates spillovers
· Improved management and better technology
· Higher average labor productivity
· Higher wages
· Stimulates exports of machinery and other capital goods (source country è host country).
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Supplying Products to Foreign Buyers: Economies of scale

o Direct exporting: When the foreign quantity demanded is relatively small.
o Licensing agreement or foreign direct investment: When the foreign quantity demanded is relatively large.

Country Risk Analysis

· Political risk analysis (50%)
· Financial risk analysis (25%)
· Economic risk analysis (25%)
· Composite country risk rating

International Country Risk Guide

· Low risk, 80–100 points
· Moderate risk, 50–79 points
· High risk, 0–49 points.

Joint venture (three types)

· Two businesses conducting business in a third country.
· A business joining hands with local private interests (Honeywell U.S. & Mitsubishi Office Machinery Company in Japan)
· Businesses with local government.

Immigrants are motivated to work abroad due

o Better economic opportunities
o Noneconomic factors: politics, war, and religion.

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