EECS 1520 Lecture Notes - Lecture 5: Product Lifecycle, Counterpoint
21 Jun 2018
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EECS 1520 Lecture 5 Notes
Introduction
Point counter-point
The imperfect markets theory suggests that imperfect markets render the factors of
production immobile, which encourages countries to specialize based on the resources
they have.
The product cycle theory suggests that, after firms are established in their home
countries, they commonly expand their product specialization in foreign countries.
The most common methods by which firms conduct international business are
international trade, licensing, franchising, joint ventures, acquisitions of foreign firms,
and formation of foreign subsidiaries.
Methods such as licensing and franchising involve little capital investment but distribute
some of the profits to other parties.
The acquisition of foreign firms or formation of foreign subsidiaries requires substantial
capital investments but offers the potential for large returns.
The valuation model of an MNC shows that the MNC’s value is favorably affected when
it’s expected foreign cash inflows increase, the currencies denominating those cash
inflows increase, or the MNC’s required rate of return decreases.
Conversely, the MNC’s value is adversely affected when its expected foreign cash
inflows decrease, the values of currencies denominating those cash flows decrease
(assuming that they have net cash inflows in foreign currencies), or the MNC’s required
rate of return increases.
Should an MNC Reduce Its Ethical Standards to Compete Internationally?
Point Yes.
When a U.S.-based MNC competes in some countries, it may encounter some business
norms there that are not allowed in the United States.
For example, when competing for a government contract, firms might provide payoffs
to the government officials who will make the decision.
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Document Summary
The imperfect markets theory suggests that imperfect markets render the factors of production immobile, which encourages countries to specialize based on the resources they have. For example, when competing for a government contract, firms might provide payoffs to the government officials who will make the decision. Which encourages countries to specialize based on the resources they have. The product cycle theory suggests that, after firms are established in their home countries, they commonly expand their product specialization in foreign countries. The most common methods by which firms conduct international business are international trade, licensing, franchising, joint ventures, acquisitions of foreign firms, and formation of foreign subsidiaries. Methods such as licensing and franchising involve little capital investment but distribute some of the profits to other parties. The acquisition of foreign firms or formation of foreign subsidiaries requires substantial capital investments but offers the potential for large returns.
