economics discussion question and need the explanation and answer to help me learn.
Q – Please read the discussion attached and prepare a Reply to this discussion post with comments that further and advance the discussion topic.
Please provide the references you used.
Ensure zero plagiarism.
Word limit: 200 words
Requirements: 200 words
Q – Please read the discussion below and prepare a Reply to this discussion post with comments that further and advance the discussion topic.
Please provide the references you used.
Ensure zero plagiarism.
Word limit: 200 words
Discussion
International Growth in Multinational Enterprises
The factors that limit the international growth of multinational enterprises:
The Nature of the Market: The market of an MNC in its home country might significantly differ from what the foreign market requires. This is due to differences in cultures, customs, beliefs, norms, tastes, preferences, and prevailing fashion. For example, the youth in the home country could be crazy for fast food, while the youth in the target country is more health-oriented and considers the consumption of fast food as bad.
Availability of Raw Materials: To set up a factory in a foreign country, the availability of essential raw materials or close substitutes is a must, else there is no point in investing and setting up a production unit in a country that lacks the availability of basic input materials.
Availability of Cheap Labor: Labor is available at cheap prices in developing countries. However, in developed countries, it is quite expensive. This is a limitation in case an MNC’s target market lies in developed countries.
Required Infrastructure: Even though labor and natural resource materials are cheaply and abundantly available in developing countries, such countries lack the proper technological and basic infrastructure required for production and trade. The absence of power and electricity, good roadways, smooth internet connectivity, and other such infrastructural lags may limit the multinational company from expanding overseas.
Prevailing Domestic Rules and Regulations: Domestic rules and regulations in the foreign country might not suit the MNC’s product or nature of business. For example, an MNC is a global producer of wine, and it wants to enter a certain target foreign market. However, the target foreign market might have laws that ban the production and consumption of alcohol. Such rules and regulations do not allow an MNC to freely expand internationally.
Prevailing Rules and Regulations on International Trade: There are several tariffs, quotas, and restrictions imposed when a company wants to directly invest in a foreign country. It might need to form joint ventures and associations and share a considerable percentage of profit with a domestic enterprise of that foreign country. It needs to adhere to various tax, pollution, and other laws in order to establish its presence in the global market.
Nature and Stability of Government: Every political government has its own approach. Few political parties favor foreign investment while few governments might not be open to them. Local corruption, riots, or other political turmoil can hamper can adversely impact an MNC’s operations.
How do regulations and rules varying from nation to nation affect multinational corporations (ٌRefer to points 5 and 6 above)
Advantages of multinational enterprises:
Economies of Scale: Large-scale production due to the availability of extended foreign markets reduces costs of production and increases profit margin.
Availability of Better Products: Products produced using foreign technology are better in quality and often more durable. This gives better options to the local buyers.
Low cost to consumer: Lower cost of factors of production, and economies of scale decrease the overall cost of manufacturing. Therefore, the products can be sold at lower prices and will become more affordable to the local consumers.
Increase in GDP: With more production, the overall output of the economy will increase. This would enhance the macroeconomic indicators of development such as Gross Domestic Product.
Inflow of Technology and technical expertise: An MNC brings foreign capital and technology into the home country. This helps in reducing the technological backwardness of the home country.
More and better employment opportunities: MNCs often pay better than local companies. They also create more job opportunities for the people which raises their per capita income.
Disadvantages of Multinational Enterprises:
Dumping Ground Policy: MNCs often dump old and outdated unsold stock in developing countries and treat them as dumping grounds.
Extinction of Local Industries: MNCs have strong backing of capital and technology. Due to these factors, they offer better and cheaper products which causes the extinction of many local industries.
Exploitation of Environment: MNCs exploit the natural resources of the foreign country in order to access cheap raw materials. Due to their industrial processes, the quality of air and water in the foreign country also gets impacted adversely.
Key references:
Bottom of Form
