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International Factor Movements and Multinational Enterprises

6 important questions on International Factor Movements and Multinational Enterprises

Three types of international joint ventures are:

· A joint venture that is formed by two businesses that conduct business in a third country.

· The formation of a joint venture with local private interests.

A joint venture where the local government participates

Reasons to start a joint venture are:

· Sharing costs.

· Avoiding governmental restrictions that foreign companies face when doing business abroad. When setting up a joint venture with the domestic company of a particular country, they avoid the governmental restrictions.

· Minimize dividend transfers abroad, which will contribute to a positive development of a nation’s balance – of – payments.

· International joint ventures are a mean of preventing protectionism against foreign imports.

· The rationale for protecting domestic output and jobs from foreign competition is lessened.

Disadvantages to starting a joint venture are:

· It’s more difficult to exercise control simultaneously over all organizations that fall under the scope of the joint venture.

· Control is divided.

· Success of failure depends on how well companies can work together despite having different objectives, corporate cultures, and ways of doing things.

· Corporate goals and personnel can be changed within each organization.

Joint ventures lead to welfare gains when:

· The newly established business adds to pre-existing productive capacity and fosters additional competition.

· The newly established business is able to enter new markets than neither parent could have entered individually.

· The business yields costs reductions that would have been unavailable if each parent performed the same function separately.

Joint ventures lead to welfare losses when:

It may give rise to increased market power, suggesting a greater ability to influence market output and price. This is especially likely to occur when the joint venture is formed in markets in which the parents conduct business. As a result, domestic welfare decreases.

The consequences of immigration: labour mobility:

· Migration affects the distribution of income.

· The country that has been left by workers that emigrated suffers losses.

· The workers that stay in a particular country earn higher wages as there is a shortage of personnel.

· Native workers fear labour immigrants as they the latter is willing to work for lower wages and, therefore, will “steal” jobs.

· Yet, lower wages result in lower equilibrium product prices, which is beneficial to consumers.

· Immigrants contribute to economic growth, which is beneficial to the whole nation.