UGF Lecture 3

Management > Global Firm > Dunning > Model 1 > Model 1 perfect > Model 1 imperfect > Model 2

Model 2 - MNEs are most likely to exist in concentrated markets

Early theorists, such as Hymer, argued that the natural environment for MNEs was in very concentrated, or highly imperfect market structures.

Picture an industry in country B dominated by a very small number of very large and very profitable firms. They are immune to the threat of new entrants as they have spent the vat amounts of money required to gain competitive advantages which they can now use at relatively little cost. These advantages include:

1. Technology (costs of R&D)
2. Top quality management (expense of establishment and learning)
3. Marketing (costs of branding and network establishment)

However, in other economies there will be other established firms which have made these expenditures (the stars from A, for example). Entry will not be cheap, but they will not have the costs of starting from scratch, so to speak.

Once the strong local firms are challenged they will retaliate by becoming MNEs themselves, entering the home market of their challengers. This will make the competition international, rather than domestic, and is referred to as "oligopolistic" competition behaviour.