The Motivation Of Multinational Companies Economics Essay

Economic strength in the context of globalisation, transnational companies is turning, more and more active in the international economic sphere today, more and more influence on the universe economic system and the national economic system. It is a merchandise of economic globalisation, the boosters of economic globalisation. Multinational corporations, international investing, favourable conditions to speed up the procedure of economic globalisation, and to advance the development of the planetary economic system.

Today, the foreign investing of transnational companies are progressively spread outing, with states in the field of trade, investing, finance, production, engineering, and services continue to deepen.The development of the productive forces, the deepening of the international division of labour, the internationalisation of production, every bit good as the host state to pull foreign direct investing policy, these factors have contributed to the rapid development of foreign investing of transnational companies.

The motive of transnational companies ( Investors ) , can be summarized as follows.

The chase of high net incomes. Maximize net incomes, the most cardinal decisive motive for transnational companies overseas investing. The chase of high net incomes is a natural property of capital, economic behaviour is any concern intent, transnational companies are no exclusion. Decline when topic to the size of the market for domestic long-run net incomes, consumer buying power, future wealth growing possibilities factors, foreign investing is higher than the domestic rate of return, transnational capital flows abroad by within the investing bit by bit turn to foreign investing. Multinational pattern of many states shows that the rate of return on its investing in foreign than in the state is much higher, such immense net incomes, the biggest motive is driven by transnational companies foreign investing. For illustration, in the terminal of 1970s, the domestic fabrication industry mean net income border of approximately 13 % , the border was 19.2 % in 1979, U.S. direct investing in developed states, direct investing in developing states, up to 32 % net income border. American direct investing in both developed and developing states border, the mid-1980s were 16.2 % and 17.2 % , 21.3 % and 13.8 % severally in 1987, 14.6 % and 17.2 % severally in 1989.

Access to foreign production resources, including natural and labour resources. Many concerns where limited domestic resources, foreign investing to better production efficiency, the chase of greater net incomes, and therefore take advantage of the investing in the state ‘s rich natural resources, such as oil, minerals and forestry, aquatic resources. In add-on, many developing states, rich labour resources and low-cost, developed by transnational foreign investing, can take full advantage of these labour resources, greatly cut down production costs and increase net incomes income. Such as the development and usage of foreign oil, minerals and forestry, aquatic resources ; seek human resources, the usage of inexpensive labour from abroad.

Get the advanced engineering and direction experience in the host state. This motivated investings are chiefly concentrated in the developed states and parts of the capital-and technology-intensive industries. Between the developed capitalist states, foreign direct investing is increasing, an of import ground why states in order to obtain each other ‘s advanced engineering and direction experience, aggregation of the latest intelligence on foreign engineering development services for the national economic building. To use advanced engineering and direction experience in the production of which can greatly better production efficiency, better production quality and greater competitory advantage in the international market.

Improve production efficiency. When the higher production costs than domestic endeavors in domestic, frequently consider to put up production workss in foreign states through foreign investing, lower production costs and transit costs, better production efficiency. On the other manus, the multinationals can be obtained through the globalisation of production specialisation of graduated table. When the size of the domestic market is limited, the endeavor can be idle resources transferred to other states, specialisation higher standardised production to accomplish economic systems of graduated table of production.

Opening up new markets. Occupy a certain market multinationals through foreign investing in export markets non antecedently host to protect and spread out bing markets, new markets opened up to some extent, in local production and gross revenues is even more favourable. By opening up new markets, multinationals can sometimes avoid some of the importing state trade barriers and trade limitations, to avoid the high duties and cut down costs. Furthermore, production and gross revenues in the importing state, can break keep the relationship between supply and protect the supply of natural stuffs and constituents every bit good as to accommodate to local patterns and concern patterns, and avoid a batch of unneeded legal differences. In add-on, out of consideration of market competition with major rivals, transnational companies will actively prosecute in abroad investing. When a company the first foreign investing, many companies tend to actively follow up, have to keep their comparative portion in the planetary market, and to keep the balance of a competitory relationship.

Enhance the fight of endeavors. Through foreign investing, transnational companies established trade webs in the endeavor. These webs are linked to the the multinationals system production units, and to vouch that each specific units have precedence entree to resources and markets of other units within the system. The internal trade of transnational companies can cut down dealing costs, and therefore be able to bring forth the same consequence as the international trade, economic systems of graduated table.

Dispersed and risk-averse. Multinational companies in the state will necessarily confront a batch of hazards, the major political and economic hazard. Political hazards, such as the hazard of political convulsion, the hazard of policy alterations, nationalisation hazard, democracy and the legal system is non perfect, etc. ; economic hazard of major exchange rates, alterations in the involvement rate hazard and rising prices hazard. Multinational corporations on the appraisal of the state ‘s long-run profitableness, the balance between the chase of net income, cost and hazard to prosecute in concern activities, choice net income – cost – and the hazard is comparatively balanced free-market system, rapid rising prices and political stableness of the developed or developing states, through the constitution of subordinates of foreign investing in the local, to diversify their investings in different states and industries, in order to procure higher net incomes.

Pursuit of the discriminatory policies of the authorities of the host state. Some host states, promulgated a series of discriminatory policies to speed up economic development, the opening-up of foreign investing, such as the lowering of duty barriers and cut down trade import limitations, revenue enhancement grants, licenses or warrant. These discriminatory policies strongly attract transnational companies on their investing, cut down investing hazard, cut down investing costs, high net incomes.

Make strategic investings. To a certain phase in the development of globalisation, transnational corporations make strategic accommodations, the rational allotment of resources on a planetary graduated table, and heighten overall competitiveness.Foreign investing determinations of transnational companies, are non considered short, local involvements, non one of its subordinates in the net income and loss and cons of a peculiar period or topographic point, but the long-run best involvements of the planetary, its attached organisations, sections as a whole, sometimes at the disbursal of the local involvements of a certain country of a sector, in order to guarantee the realisation of the planetary strategic aims and the overall involvements.

Transportation of environmental pollution. Developed capitalist states is purely limited companies engaged in domestic production could easy take to pollution, therefore lending to the endeavor through foreign direct investing, and the polluting industries to reassign abroad. Therefore, the proportion of high-polluting industries in the developed states, foreign direct investing, is really high. Some developed states many old ages ago began to smartly develop the emerging high-tech, high value-added industries, while those with high energy ingestion, high stuff ingestion, high pollution, labour-intensive sundown industries to developing states. This can take full advantage of their investing in the state ‘s inexpensive labour, inexpensive resources of the development states, and inexpensive resource development procedure, but besides to environmental devastation procedure.

The impact of cultural and cultural ties. Some companies are influenced by internal staff, for illustration, when the experts and board members of the company ‘s strong support of abroad production, foreign investing easier. For some underdeveloped states, transnational companies, its cultural and cultural ties to do abroad investing determinations have a major impact. By cultural and cultural ties to advance foreign investing in the abroad Indian community and the abroad Chinese communities in Southeast Asia was peculiarly conspicuous. The chief beginning of foreign-invested endeavors in India entree to foreign information and reach the abroad Indian diaspora plays a really of import function.

Traditional FDI theory of motive

monopoly advantage theory

American bookman Stephen Hymer 1960 in his doctorial thesis, “ domestic endeavors in international concern: foreign direct investing ” , the usage of makers monopolistic competition rule motive of Foreign Direct Investment, “ monopoly advantage theory. “

Main points: ( 1 ) market incompleteness transnational companies to the root cause of foreign direct investing and the footing of that perfect competition is non merely a strictly theoretical premises, and under perfect competition, foreign direct investing does non happen, prevalent in the world of economic life is amiss competitory markets of assorted types, including: trade good markets are uncomplete, uncomplete factor markets, the market is non wholly due to economic systems of graduated table every bit good as due to authorities intercession in the market is non wholly. ( 2 ) the market incomplete so that transnational companies can hold a monopoly advantage, this monopoly advantage is the transnational determiners of foreign direct investing. Remark: the monopoly advantage theory is the first survey independent theories of foreign direct investing, and to put the footing of the foreign direct investing theory research to develop and heighten their monopoly advantage is a necessary requirement for Foreign Direct Investment. The background of monopoly theory is the survey of U.S. multinationals obvious monopoly advantage, and therefore do non hold a monopoly advantage explain the rise of the development states, foreign direct investing, weariness, and has certain restrictions, can non explicate endeavors to give up the monopoly advantage export and transportation of engineering licences and direct foreign direct investing

Monopoly advantage is of class an of import requirement for endeavors to foreign direct investing, but besides should acknowledge the the Advantage formation is a dynamic procedure of development, our strength can besides be bit by bit civilization through foreign direct investing and rising-monopoly advantage.

Product Life Cycle Theory

Harvard University professor Raymond Vernon, in May 1966, published in the Quarterly Journal of Economics “ merchandise rhythm in international investing and national trade, merchandise life rhythm theory.

Main points: the monopoly advantage, merchandise life rhythms, every bit good as location factors combine dynamic accommodation of the foreign investing behaviour of transnational companies: ( 1 ) the merchandise invention phase: invention and transnational endeavors took the lead in the development and production of new merchandises, as new specificity of the merchandise has a low monetary value snap of demand and high income snap, corporate monopoly advantage merchandises tend to be in the domestic production ; ( 2 ) mature phase: the monetary value snap of demand is increasing, engineering proliferation, every bit good as the impact of trade barriers, advanced transnational endeavors start to the sub-developed states for foreign direct investing in local production and gross revenues ; go a major portion of the cost of the merchandise ( 3 ) merchandise standardisation stage: When the non-technical skilled labour, concern competition chiefly to monetary value competition, when the corporate inclination by the international direct investing in the production transportation to developing states with lower labour costs, exports will countercurrent phenomenon.

Product life rhythm theory dynamic reading of the motivations of developed states, foreign direct investing, the relationship between the timing and location pick, to some extent, reflect the procedure of integrating of the universe economic system, and besides set Forth from one side of the corporate international concern motive due to two facets of debate and from inside and outside the endeavor the demand for foreign direct investing. However, the theory for the concluding merchandise market, explained the phenomenon of foreign investing for the resources, engineering development-fatigue. And the theory is hard to explicate to non-lieu of exports increased investing and multinationals phenomenon of abroad production of non-standardized merchandises.

Before the foreign direct investing determinations, analysis of which the merchandise life rhythm phases: First, the nature of the production engineering, type, and their proliferation and metastatic analysis ; Second, swot analysis of the merchandise itself, find the merchandise competitory advantages, failings, chances and menaces ; concluding gross revenues of domestic merchandise, foreign export every bit good as domestic and international market conditions analysis. Based on the above analysis, and finally find the life rhythm of the merchandise in which the market entry determinations to steer endeavors to foreign direct investing. The transportation of the topographic point of production of the merchandise matured to the low monetary values of factors of production near to the market country. China ‘s place contraption, fabric, machinery, electronics and other industries because of extra production capacity, merchandise serious glut has entered the mature phase of the merchandise, coupled with the international anti-dumping, the impact of trade protectionism, we can alter the yesteryear merely rely on export scheme, and the production equipment and the ability of these industries to the appropriate countries transferred out, fabricating abroad.

Internalization Theory

In 1976, the University of Reading, UK economic expert at Bar clays and Carson, every bit good as Canada economic experts Laghman Coase ‘s theory of dealing costs based on uncomplete market as a starting point, internalisation theory, stressing concern monopolistic advantages remain within the endeavor, and the internal usage and take advantage of the procedure.

Chief point: the external market failure, intermediate merchandises ( in add-on to the usual sense of the natural stuffs and parts, the more of import is the proprietary engineering, patents, direction and sale of engineering cognition intermediate merchandises ) the monetary value is hard to corroborate go forthing trading costs are excessively high, in order to get the better of a assortment of operating obstructions, to guarantee that enterprises get maximal net income, have the power to organize an internalisation of market, non merely rational allotment between the assorted subordinates and take full advantage of the resources and merchandises, but besides can efficaciously forestall engineering diffusion, protection of rational belongings rights of endeavors.

Internalization theory from the organisation in the signifier of exchange between endeavors signifier of production analysis of the nature and beginning of the transnational companies, the common account of the the built-in formation mechanism multinationals apply to states with different degrees of development, and dealing costs-minimization intents, and to show the necessity and advantages of internalisation. Subjective facets of internalisation theory merely from multinationals to research the international direct investing internal factors such as motive and basic, non plenty to see the alterations in the international economic environment, the international division of transnational companies, the deficiency of overall production, operation of the layout, and location pick apprehension.

Recognize the advantages of economic systems of graduated table, the enlargement of the internal market. If the endeavor itself smaller, internal market, such endeavors external dealing costs will be high, so we can be strong confederation between endeavors, amalgamations, perpendicular, horizontal or perpendicular integrating or the authorities to further recognize the advantages of economic systems of graduated table, spread outing the internal market, increasing its internalisation advantages ; formation of big endeavor groups in conformity with the demands of the modern endeavor system, to clear belongings rights, direction, coordination, give full drama to the function of the internal market. Combination of fiscal capital and industrial capital enhanced internal market funding capacity. Enterprises should set up its ain Finance subordinate, through the internal market flexibleness shorten the clip of funding, increasing the velocity of funding, cut down funding costs, to spread out the graduated table of concern ; corporate cognition, proficient professional with alone focal point on fostering. Strengthen the importance of technological invention, increase investing of resources to the scientific discipline and engineering sector, and to beef up the cooperation between endeavors and universities, research establishments, motivating companies to go on technological invention, and the importance of the grade of patent protection of new engineering, through the organisation of the system internal integrating of the cognition of information engineering merchandises and information web, and net incomes for endeavors to win.

The theory of comparative advantage

The late seventiess, Nipponese bookmans Kiyoshi Kojima usage Heckscher – Ohlin gift differences lead to the rule of comparative advantage, uniting trade and foreign direct investing, to the 1950s-70s Nipponese foreign direct investing topic for scrutiny, analyzes the trade effects of foreign direct investing, with their ain typical theory of comparative advantage. “

The chief points: ( 1 ) foreign direct investing should compare costs from puting state has been at a disadvantage or are about to lose the comparative advantage of the industry – “ fringy industry to put in the host state has a possible comparative advantage similar industries. Between investing and trade are complementary instead than replacements to each other, and so better able to advance the development of bilateral trade ; ( 2 ) little and average endeavors should be walking in the head of foreign direct investing. : With labour-intensive industries SMEs relative to big endeavors more likely to be “ fringy endeavor ; fringy efficiency of SMEs and the host matching industrial engineering spread is smaller, more suited for local production conditions.

The theory of comparative advantage to analyse the motivations of foreign direct investing from a macro position, groundbreaking, and made a unvarying reading of the combination of the relationship between foreign direct investing and foreign trade. But it ‘s merely a phase theory, can merely be explained by the perpendicular division of labour based on investing in the economic system between the developed and developing states. The concluding theory of comparative advantage underestimate the ability of developing states to accept a hi-tech, believe that developing states can merely accept fringy industries in developed states, has certain restrictions.

Eclectic theory of international production

The celebrated British multinationals expert, University of Reading, international investing and international concern professor John Dunning draws monopoly advantage theory, internalisation theory, combined on the footing of the philosophy of the resource gift in the theory of international trade, a via media method international production eclectic theory.

Chief point: ownership advantages and internalisation advantages is to guarantee the necessary conditions for transnational international direct investing, location advantages are sufficient conditions for the international direct investing, merely three sorts of advantages exist, international direct investing to be successful, these three facets the advantages determine the motivations of foreign direct investing, the investing decision-making and investing way.

Sum up

Overall, Foreign direct investing in assorted investing motivations can be entirely, can besides coexist, which is the most basic investing motor chase of high net incomes investing motivations, and other types of investing motivations are derived form.In general, the overall benefits obtained by the direct investor ( transnational corporations ) concern is how the available resource constellations to different economic systems, in add-on to the involvement income due to the usage of financess for direct investors frequently besides acquire direction fees and other income, these extra benefits are frequently associated with the long-run direction of the enterprise.The multinational ( Investor ) foreign investing motivations are varied. Resources, market, proficient considerations, both seek to avoid hazards, better operational efficiency and other grounds. Diversified investing motivations prompted a turning figure of transnational companies in the planetary market with increasing depth foreign investing, non merely to heighten the international fight of assorted transnational companies, optimize the planetary allotment of resources, and besides to advance the production international and socialisation, and speed up the procedure of planetary economic integrating. Obviously, the transnational companies have become active in the international economic sphere entity, is the indispensable drive force of the development of the planetary economic system, and will play an progressively big function.