The Industrial Flight Hypothesis Is A Threat Of Multinational Corporations

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The industrial flight hypothesis became an issue in the 1970s when a direct accusation was made that US pollution control laws were so severe they could result in a massive outward investment or relocation of major manufacturing industry. The UN launched a survey on environmental aspects and found the data of the industry fight hypothesis to be inconclusive. Their study has reported: 1. Environmental differentials cannot be considered in isolation. Their significance must be considered within the complete structure of costs, risks and returns to which make up location decisions 2. Rather than resort to alternative foreign locations, firms prefer to expand at present sites or make internal shifts within countries…show more content…
Rio Tinto has implemented risk analysis and management process which has been categorized into classes, one through four, four needing immediate attention. The risk analysis and management must consider the accompanying five sorts of monetary outcomes capital expenditure, schedule, operating cost, production volumes, and revenue. It likewise incorporates the outcomes of health impacts, environmental impacts, community impacts, compliance impacts, and business reputation. (Center for Climate and Energy Solutions 85). However, in order for the race to the bottom to occur four prerequisites must be met: homogeneity of products, transaction costs, sunk costs and regulatory differentials. Homogeneity of products is depicted as goods and services that are same or comparable in nature. Since goods are homogenous, firms feel committed to vie for any relative point of interest that they can increase their opposition. The more homogeneous the product in any industry the further we would expect to see competition (Spar and Yoffie 155). Another factor is transaction costs, the more difficult and time consuming a relocation will be the less likely it will occur. The stickiness is the resistance of a cost to change, in spite of changes in the more extensive economy recommendation of an alternate cost

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