Theories of Multinational Enterprises. Why do they exist?

Horizontally integrated multinational corporations manage production establishments located in different countries to produce the same or similar products. (example: McDonald 's)

The concept of foreign direct investment (FDI) is closely related to the definition of transnational corporation (MNE, MNC, transnational corporations). In the literature, there are several definitions describing the features that should have a firm considered as multinational enterprises.

Multinational Corporations have always been and are currently now under harsh criticism. They are mainly condemned for exploiting resources and workers of third world countries, taking jobs away from the US industry, and destroying local cultures. Although there are negatives of multinational corporations, there are also positives. Business done overseas provides jobs for the people of the host country, improving the standard of living, and transfers technology. Richard T. De George explains moral standards, in five basic theses, that multinational corporations must adhere to in order to maintain corporate ethics.

In addition, it helps to optimise the configuration and utilisation of global factors. A country’s production is limited by its factor

International trade is based on having a comparative advantage. Countries produce products that are easier for them to produce, then

There are many theories given by different group of researchers about the existence of multinational enterprises or MNE's. According to John Cantwell, it was in the 1970's and 1980's that many theories on MNE's were proposed. These theories were either general theories of MNE's which were called the main institution for international production or the theories on foreign direct investment, the means by which international production is done ( Pitelis, Christos N. and Sugden, Roger, The nature of the Transnational firm, Pg 10). Amongst the most famous are the Hymer's theory of international production, the internalization theory put forward by Buckley and Casson, Dunning's Eclectic Paradigm, and the evolutionary theory

Countries are enabled by free international trade to specialise or to focus in the production of the goods in which they have a comparative advantage. Specialisation countries can take the benefit of efficiencies generated from increased output and economies of trade. The size of the firm’s market are increased by the international trade which results in lower average costs and increasing in productivity, as it ultimately leads to increase in production.

Dunning’s OLI paradigm (1976) is used to support firms to locate its production in countries that are financially beneficial for them. According to Dunning, “the paradigm offers a holistic framework to take in consideration all of the important factors that influence the decision of a MNE.” (Stefanović, 2008, p.241) FDI is determined through the composition of the three powerful advantages; ownership, location and internationalisation as shown in figure 1. The thesis is to assess, ‘why go multinational?’, ‘how to choose the best location?’ and ‘what actions have to be taken to enter a foreign market?’

“A multinational enterprise is a company that is headquartered in one country but has operations in one or more other countries” (Rugman and Collison, 2012). A firm on the other side operates within the national borders of a country. Some firms want to expand, not only in sizes but also in value and market share, by becoming MNEs. This is due to the fact that it can bring remarkable advantages even though is very risky. MNEs perform international business operations named as: Exports and Imports, Foreign Direct Investment (FDI). The first branch includes the goods and services that are produced in a country and sold in another one and vice versa, the second branch consists in equity funds invested in foreign countries. It is when firms begin to use FDI that they become MNEs.

transactional costs. This can be achieved through vertical integration where the firms relocate their own suppliers and customers to a foreign market in the attempt to minimize costs such as additional transportation costs, tariffs and exchange rate fluctuation. It is understood that when market risk and uncertainty is high, then transaction costs are high, and internalisation of operations (undertaking of FDI) is preferred (Assunção, Forte & Teixeira, 2011,p.5). Government policies on subsidies, tariffs, tax holidays and incentives, exchange restrictions and foreign investment restraints may influence FDI. A host country may attempt to protect their domestic industries via the implementation of higher import tariffs. The higher the import duties, the higher the cost of importing, reducing profit margin and in turn discourage firms from importing goods. This component explains why MNEs prefer to undertake FDI rather than alternatives such as exporting or licensing to gain entry into the market. (Denisia, 2010, p. 108).

Peng et al. (2008) articulates a framework in which firm resources and capabilities are viewed as one of three antecedents of a firm’s international business strategy (the other two being industry based competition and institutional conditions and transitions). Thus, the current literature sheds light only on how the capabilities of MNEs enable them to formulate appropriate strategic choices that match their resources with opportunities in their external, that is, their global, environment. However, mechanisms that ensure successful implementation of the chosen strategies remain unclear. While we assume that MNEs should be able to establish appropriate structures to match their strategies, research has shown that there is a lot of incongruence between MNE strategy and structure (Duysters and Hagedoorn 2001).

In the case of trade barriers, companies move from exporting their products to manufacturing them overseas in order to avoid the burden of tariffs, quotas, the policy of buy-local and other restrictions that make export too expensive to foreign markets.

The objective of MNC to operate in other countries is to gain competitive advantage through several ways. Firstly, MNC is able to take advantage of difference in country-specific circumstances. For example, MNC may choose to locate its productions in less developed country like Vietnam to gain cheap labor cost. Secondly,

Subject : Appraisal of a MNE's recent market entry (2007-2010) ( 1. Firm Motivations for internationalization 2. Entry Strategy 3. Corporate Strategy)

International trade has advantages for every country. Other countries may produce certain goods more efficiently than another and trade