Transnational Corporation Assignment

(Chapter 5, Question 4) Drawing on the theory of comparative advantage to support your arguments, outline the case for free trade. According to the theory of comparative advantage, a country should specialize in the production of goods that it is good at producing, and buy the goods from another country that it is less efficient at producing. Therefore if country X can produce product A more efficiently than product B, while country Y can produce product B more efficiently than product A, then they should trade (even in the situation wherein country X has an absolute advantage over country Y in producing both product A and product B). Country X should sell country Y product A and buy product B from country Y. Both country will benefit from trade in this situation.

(Chapter 7, Question 5) Explain how the politics of a host government might influence the process of negotiating access between the host government and a foreign MNE. The permissiveness or restrictiveness on the part of the host country toward FDI will have a big impact on the outcome of the negotiation between the host government and a foreign MNE. For example, in the case the host government is very interested on what the foreign firm has to offer, then the MNE bargaining power will be high. On the contrary, if the host country is lukewarm on what the foreign firm has to offer, then MNE bargaining power will be low. Also, if the options open to the MNE are many and time is not critical (the MNE can afford delays), then the MNE will be in a very strong position to negotiate to get the best deal.

References

1.Globaltrade.net, 2012. Globaltrade.net. [Online] Available at: http://www.globaltrade.net/international-trade-importexports/f/business/text/Egypt/Business-Environment-Doing-Business-in-Egypt.html [Accessed 11 November 2012].