UGF Lecture 9

Management > Global Firm > Issues > Efficiency issues

1. Efficiency issues

If MNEs operating in other national economies cause increases in world economic welfare that could have been generated another way.

Observation of current MNEs operating does not point to the existence of this type of efficiency. Subsidiaries produce profit, but it it may not be the right sort of efficiency. Two sources of market imperfections can be suggested:

• Strong market power in the host country due to protection against imports or a guaranteed market position (no local competitors or MNE rivals)
• Imperfections in markets for OAs that limit possibilities of selling the sources of competitive advantage to local firms, thus enabling the ability to gain monopoly rents on these advantages.

The "positive face" of globalisation is that MNEs can use their OAs efficiently by combining them with LAs of particular countries, which also improves the value of the LAs. This makes the world "better off".