Critically compare and contrast three theories of the multinational Essay

Critically compare and contrast three theories of the multinational firm. Which best explains firm behaviour and why - Essay Example The primary drive operating behind their decision to outspread are the cost benefits and profit potentials which lie in different locations (Maheshwari, 1997, p. 246). However, there are certain aspects which influence the profit and cost factors in a certain region. Those are the very elements which instigate the businessmen to spread out. In fact, theories have been framed by eminent observers in the past, to comprehend the factors which actually guide the production decisions of trans-national companies. Three fundamental factors are ownership, location and internalisation aspects which taken together form the essence of OLI Theory of International Production. This however, is part of the neo-classical school of thought (Taylor & Thrift, 1986, p. 9). Likewise there is the Marxist economic theory or the Neo-Imperialist views which support the decisions taken by trans-national companies to spread out their businesses to different nations around the world. Capitalist economies tend t o accumulate a large volume of resources at home which they are restricted from making use of at home due to restrictions imposed over their employment. Hence, they have little option but to generate profit out of their surpluses through deploying them across national borders. Thirdly, the Neo-Fundamentalist Marxist principles say that the primary enticement behind spreading out their businesses is that the industries which gradually acquire a monopolistic position, start enjoying the advantage of huge surpluses. Due to a limited scope for employing them in the nation where they belong, the industrialists deploy them in foreign lands where they have greater prospects of reaping profits (Jenkins, 1987, p. 447-451). The present paper discusses the similarities and differences between each of the three types of economic theories stated above to assess the factors which induce foreign investors towards expanding their businesses across nations. Finally, an evaluation about the theory mo st applicable in context of business houses today will be made as a concluding note. Chapter 2 – Theoretical Framework 2.1 Marxist or the Neo-Imperialist economic theory According to the views of Marxist economists, the developed and developing economies are complementary to one another and make up the entire global system. However, they also emphasise that the latter are usually the ones who are exploited by the former so that there is a continued outflow of surplus resources from the reserves of developing nations to the already burgeoning stock of the developed nations. The essence of the theory is the monopolisation of industrial houses which leads to an accumulation of huge sums of profits in the capitalist nations. On the other hand, the prevalence of anti-trust laws restricts an expansion of their businesses within the domestic frontier through forming cartels. Thus, the surpluses which are reaped stay idle and hence, attain a stagnant rate of growth which is not desir ed by the private producer (Jenkins,

Finances Essay Example | Topics and Well Written Essays - 1250 words

Finances - Essay Example These subsidiary companies are engaged in a wide range of business activities. The main ones are primary insurance and reinsurance business. Over the years it has acquired a myriad of subsidiaries engaged in diverse business operations like utilities and energy (MidAmerican Energy Holdings Company), manufacturing-service-retailing (Marmon group), wholesale distribution & logistics (McLane), jewelry (Ben Bridge Chain), carpets (Shaw Industries), bricks & boots (Justin Industries). The insurance (both primary and reinsurance) business is through more than sixty national and overseas enterprises. Berkshire being primarily in insurance business in effect means that the premium for undertaking risk generates cash which is available for investment when the opportunity knocks. The reputation of Mr. Buffet has been built over the years is due to the fact that he has been consistent in picking winning opportunities by and large. This translates into the fact that almost of the business acquisitions turn out to be profit making ones, which in turn swell the coffers of Berkshire to be ready to invest. Contrary to expectations and common belief, Berkshire does not invest by only trading in stock i.e., picking stock at low price and selling, but also by investing in the businesses and earning through their operations. â€Å"For some sellers Berkshire is a refuge, a place to land when, say, some members of a family that controls a private company want cash and others wish to keep running the business. To the latter Buffett promises independence and respect and then--barring some irreconcilable problem that just has to be dealt with--delivers on the commitment. "We dont have any MBAs running around telling these people what to do," Buffett says. "And God knows I wouldnt know what to tell them." To public companies that may also have a family reason for selling, or that just want to escape the cold world of regrettable stock prices, unrealistic quarterly demands, and