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UGF Lecture 9
Management
> Global Firm >
Issues > Efficiency issues >
Distribution issues >
Sovereignty and self-reliance issues >
Vertically integrated MNEs
Vertically integrated MNEs
These MNEs tend to be in resource-based, primarily product-based
industries. There are three conditions required for a vertically
integrated MNE:
- Location. There are several separate (technologically
different) stages in the production process that can be located at
different places at very little cost. Due to LAs, the different
stages will be carried out at different locations.
- Internalisation. However, this is not necessarily
internalised, as different firms may be involved and linked through
the market. When the different processes are owned by the same firm
(due to benefits of internalisation), the goods are transferred
within the firm.
- Ownership. Whether or not the firm will be vertically
integrated depends on the nature and characteristics of the
intermediate goods (OAs). If the market is efficient for the good or
the transaction cost is high, the same firm will own both or all
processes.
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