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Topic 3.  Internationalization as a basis of transnational corporations 

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Topic 3.  Internationalization as a basis of transnational corporations 

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- Theories of foreign direct investment and TNCs: overview of international trade theory, the theory of foreign direct investment
- The essence and advantages of internationalization. Stability of the internationalization process.

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Prior to the existence of multinationals, private equity crossed national boundaries only in the form of portfolio investment. Only in the 1920s. the trend towards foreign direct investments have began.
Review of International Trade Theories development                   - A. Smith's theory of absolute advantage offers a specialization of each country in the production of the goods it can produce most efficiently, ie at the lowest cost.
-  According to D. Ricardo's theory of comparative advantage, if a country can do each of two commodities more efficiently than another country, it must specialize in the production of relatively more efficient, manufactured goods with great absolute advantage/
- According to Heckscher - Ohlin theory, each country should export those products that are most heavily used in the production of the so-called excesive factor of production.

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7.There are 3 main steps of internationalization:          1) initial;             2) local market expansion;              3) transnational.       

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7.There are 3 main steps of internationalization:          1) initial;             2) local market expansion;              3) transnational.       

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4.Internationalization ^nternationalization is characterized as the process of a firm's growing involvement in international operations 

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4.Internationalization ^nternationalization is characterized as the process of a firm's growing involvement in international operations 

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internationalization additionally covers transactions that are outside the realm of vertical or horizontal integration, such as the acquisition of capital, labor and technology.

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Foreign direct investment theories
- theory of capital movements :
states that the company crosses national borders in order to obtain more profit in a foreign country than expected from activities in the domestic market.
- market imperfections theory:   decision to pursue  direct international investments is dictated mainly by a desire to take advantage of advantages that are not available to national firms-

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5.Eclectic theory of international production  (OLI theory), (theory of Danning)

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5.Eclectic theory of international production  (OLI theory), (theory of Danning)

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FDI should occur on the basis of three groups of factors:
a) ownership advantages (O ): competitive advantages of the firm, incl. technological level, management skills, marketing experience, image, economies of scale, etc .;
b) location advantages; (L) include production costs in a foreign country, tariffs, taxes, transportation costs, political risk, infrastructure development, etc .;
c) internalization advantages (I) associated with the possibility of obtaining higher results through independent activity in a foreign country compared to the use of local distributors, licensees

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 3. Horizontal and vertical integration is very important for TNCs.

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 3. Horizontal and vertical integration is very important for TNCs.

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Horizontal integration -  arises at the merger of firms producing similar or homogeneous products with a view to their subsequent implementation

Vertical integration involves the merging of firms operating in different production cycles
3 forms of vertical integration:
- downstream integration (for example, the joining of a manufacturing or semi-finished plant or raw material to a company that runs the main production);
- Upstream production integration (in particular, the acquisition of a steel-foundry company for a metalworking plant);
- Upstream production integration, which includes distributiontion cycles

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Be prepared for testing control on Topics 1-3 on next week!!!!

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Do you have some questions? Don't hesitate to ask! Will discuss together!!

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Do you have some questions? Don't hesitate to ask! Will discuss together!!