Assuming perfect markets and free trade, then exporting would be the most efficient method of serving foreign markets and FDI would not take place. In this framework there is no need for the MNE. International production must therefore be a response to some market imperfections in the goods or factor markets. Trade, the result of country-specific advantages, is replaced by firm-specific advantages, which lead to FDI. When transportation costs are added to production costs, it …
showed first 75 words of 1540 total

showed last 75 words of 1540 total
…imports, (tariffs etc) tax rates. Incentives, political / economic stability. * Other: Transport & Communication costs. Infrastructure (commercial, legal, transport). Internalisation Advantages. * Market Failure: Reduction of Market Transaction Costs. Avoidance of property rights cost. Control of supplies and conditions of sale. * Monopoly Power: Where market does not permit price discrimination. Control of market outlets. Pursue anti-competitive practices (cross subsidisation, predatory pricing). * Product Differentiation: Need of seller to protect product quality. * Government: Exploit or avoid government intervention.