Question

Discussion Post - There are questions related to International Factor Movements and Multinational Enterprises - Respond to each question with a paragraph each

1. Is there any differences between the theory of multinational enterprises and conventional trade theory?

2. What are the disadvantages of forming joint ventures?

Answer 1

1) In a multinational company there will be intra firms and sister firms where trade will be done mostly with those firms. Multinational companies always try to use transfer pricing of many other pricing strategies to increase the profit. Multinational companies always see that any one of their subsidiary company is earning profits and mostly dependent on those firms.

In conventional trade theory the firms are independent and competitive and are not dependent on any subsidiary firms. Trade is done between two independent firms. They will follow price strategy to see that firm earns profits on a whole.

2) In a joint venture there will be always an tension between owners for control of power on organization. People have different opinion and mindsets so it will be difficult to bring a better understanding between owners as they may not be agreeing with each other views. The main problem in a joint venture is that both partners want power and management so they will try to dominate each other. There will be deadlock while coming to taking a decision due to disagreement between onwers. Both the agenda and the objective of both the owners may not be same all the time.