EECS 1019 Lecture Notes - Lecture 14: Product Lifecycle, Agency Cost, Comparative Advantage
15 Jun 2018
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EECS 1019 Lecture 14 Notes
Introduction
Why firms pursue international business
• The parent can then easily track the inventory, sales, expenses, and earnings of each
subsidiary on a weekly or monthly basis.
• Thus, using the Internet can reduce agency costs due to international aspects of an
MNC’s usiess.
• Three commonly held theories to explain why firms become motivated to expand their
business internationally
• The theory of comparative advantage
• The imperfect markets theory
• The product cycle theory
• These theories overlap to some extent and can complement each other in developing a
rationale for the evolution of international business.
Theory of Comparative Advantage
• Multinational business has generally increased over time.
• Part of this growth is due to firs’ ireased realizatio that speializatio y outries
can increase production efficiency.
• Some countries, such as Japan and the United States, have a technology advantage
whereas others, such as China and Malaysia, have an advantage in the cost of basic
labor.
• Because these advantages cannot be easily transported, countries tend to use their
advantages to specialize in the production of goods that can be produced with relative
efficiency.
• This explains why countries such as Japan and the United States are large producers of
computer components while countries such as Jamaica and Mexico are large producers
of agricultural and handmade goods.
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