Chapterg1gMultinationalgFinancialgManagement:gOpportunitiesgandgChallengesg▪g1
MULTINATIONAL FINANCIAL MANAGEMENT: OPPORTUNITIE
G G G
S AND CHALLENGES
G G
ALL CHAPTERS
G
1. GlobalizationgRisksgforgMNEs.gWasgglobalizationgresponsiblegforgthegslowdowngofgMNEgbusine
ssgduringgthegfinancialgcrisisgofg2008?
Ingtoday’sgglobalgeconomy,gthegprocessgthatgintegratesgworldgtrade,glinksgfinancialgmarkets,gandgpro
pelsgcross-bordergcapitalgflowsgisgcalledgfinancialgglobalization.gIngourgglobalizedgworld,g€4–
5gtrilliongingforeigngexchangegtransactionsgaregmadegdaily,gandgaroundg€20gtrilliongofggoodsgandgser
vicesgaregtradedgglobally.gAsgmuchgasgfinancialgglobalizationghasgproducedgmanygopportunitiesgforg
MNEs,gitghasgalsogintroducedgnewgthreats.gIrresponsiblegbankglendinggandgcreditgexcessesgledgtogfail
uresgofghighlygleveragedgbanksgandglargegbusinesses.gThegbustgcreditgandgsharpgeconomicgdownturng
rapidlygspreadgfromgthegUnitedgStatesgandgEuropegtogthegrestgofgthegworld.gConsequently,gglobalgpur
chasinggpowergandgconsumergconfidencegdroppedgroundgthegworld,gseverelygimpactinggsalesgrevenu
es.gMNEsgweregespeciallyghit,gnotgonlygbecausegtheirgglobalgsalesgdropped,gbutgalsogbecausegmuchgo
fgtheirgexcessgfundsgwereginvestedgingriskygassets.
2. MNEsgandgOperationgingGlobalgMarkets.gWhatgaregthegfactorsgthatgaffectgthegdecisionsg
ofgmultinationalgenterprisesgtogoperategingglobalgmarkets?
Thegmaingdetermininggfactorgforgoperatinggingagnewgmarketgisgthegcomparativegadvantagegingtermsg
ofgcostgandgrategofgproductivitygofgfactorsgofgproduction,gbettergregulations,glowergtaxation,gprote
ctionistgtradegbarriers,gstablegforeigngexchange,gandglargergmarkets.gOthergfactorsgthatgincentivize
gforeignginvestorsgaregsavingsgongtransportationgcostsgandgthegneedgtogregularlygadaptgtogchangin
gglocalgdemand.
3. EurocurrenciesgandgEurocurrencygMarkets.gWhatgaregthegmajorgeurocurrencies?gWhatgisgmeantgb
ygagEurocurrencygmarket?
, Chapterg1gMultinationalgFinancialgManagement:gOpportunitiesgandgChallengesg▪g2
Ageurocurrencygisgagfreelygtradablegforeigngcurrencygdepositedgingagdomesticgbankgofgagnationgthat
gisgnotgthegnativegcountrygissuinggthisgcurrency.g ThegmaingeurocurrenciesgaregthegUSgdollar,gthegeur
o,gthegBritishgpound,gandgthegJapanesegyen.gAgeurocurrencygmarketgisgagmoneygmarketgwheregfina
ncialginstitutionsgprovidegbankinggservicesgtogagvarietygofgindividual,gcorporate,gandgsovereigngcusto
mersgingeurocurrencies.
4. FragilitygofgthegGlobalgFinancialgMarketplace.gHowghasgthegglobalgfinancialgcrisisgexposedgthegfragil
itygofgassetsgandginstitutionsgofgthegglobalgsystem?
Ingtheginterlockedgfinancialgglobalgsystem,gthegfragilitygofgassetsgandginstitutionsgledgtogthegeruption
gofgthegglobalgfinancialgsector.gHighgriskgassetsgsuchgasgderivativesgweregtraded.gWhileginitiallyggene
ratedgtoghedgegagainstgrisksgandgcreategliquidity,gmanygofgthesegderivativesgweregmulti-
tieredgandghighlygopaque,gmakinggitgdifficultgtogassessgtheginherentgrisksgassociatedgwithgthem.gThe
ginstitutional
frameworkgforgderegulationgandglapsegsupervisiongleftgmanygfinancialginstitutionsgandginstrumentsg
unregulated.gMoreover,gtheglackgofgagglobalgregulatorygframeworkgleftginterbankgtransactionsghighly
gunsupervised.gAllgofgthesegfactors—ranginggfromgirresponsiblegissuancegandgtradingginghighgrisk
assets,gpoorgdomesticgsupervision,gandgtheglackgofgglobalgregulationgofginterbankgtransactions—
gexposedgthegfragilitygofgthegglobalgfinancialgframeworkgwhengthegglobalgfinancialgcrisisgerupted.
5. MNEsgandgLIBOR.gMostgMNEsgeithergtakegloansgingeurocurrenciesgorgissuegeurobondsgwithgagfloati
nggcoupongrategtiedgtogthegLIBOR.gExplainghowgMNEsgweregaffectedgbygthegLIBORgscandal.
AgfewglargegbanksgweregfinedgandgpenalizedgforgrigginggthegbenchmarkgLIBORgrate.gWhileglargegba
nksgborrowedgfundsg(asgwasgthegcasegduringgthegglobalgfinancialgcrisis),gtheygmadegtheirgquotesgbel
owgthegfairgmarketgrate.gRegulatorsgoftengassumedgthatgbanksgweregalsogtryinggtogbenefitgtheirgcor
porategcustomers,gallowinggMNEsgtogissuegnewgeurobondsgatglowergrates,ghencegsubstantiallygredu
cinggthegpurchasinggpowergofgthosegholdinggtheirgbonds.
6. Post-
LIBORgScandal.gWhygdogyougthinkgthegUKggovernmentghasgresolvedgagainstgthegtotalgeliminationgof
gLIBORgbenchmarksgaftergthegscandal?
ThegLondongInterbankgOfferedgRateg(LIBOR)gisgwidelygusedgasgagbenchmarkginterestgrategforghundre
dsgofgbillionsgofgdollarsgingfinancialgcontracts,gcorporategloans,gandgadjustablegrateghomegmortgage
sgandgconsumergloans.gIng2012,gthegLIBORgscandalgwasgexposed,grevealinggcollusiongbetweengand
inaccurateginterestgrategquotesgbygagdozenglargegBritishgbanks,gsomegofgwhichgfraudulentlygreported
, Chapterg1gMultinationalgFinancialgManagement:gOpportunitiesgandgChallengesg▪g3
theirgshort-
termgborrowinggcostsgsogasgtogprofitgfromgdeals.gFollowinggthegLIBORgscandal,gmanyghavegcalledgf
orgthegtotalgeliminationgofgLIBOR.gHowever,gasgitgremainsgthegonegandgonlygpervasiveginterestgrate
gbenchmark,gthegBritishggovernmentgdecidedgagainstgabandoninggitgandgresolvedgtogtake
measuresgtogsavegandgreformgit.gThegnumbergofgLIBORgquotesgwouldgdropgfromg150gtogtheg20gm
ostgimportantgones.gAmonggthegcurrenciesgtogbegphasedgoutgaregthegAustraliangdollar,gCanadiang
dollar,
NewgZealandgdollar,gDanishgkroner,gandgSwedishgkroner.gMoreover,gfourgofgtheglonger-
termgmaturitiesgwouldgbegeliminated.gAdditionally,gallgreportinggbanksgaregrequiredgtogsubmitgdocu
mentationgprovinggthegsourcesgofgthegratesgtheygaregquoting.gHowever,gthegcaveatgisgthatgmanygof
gthegratesgwould
remaingunsupportedgbygactualginterbankgtransactions,graisinggdoubtsgaboutgthegaccuracygofglong
er-gtermgLIBORgquotes.
7. LimitationsgofgComparativegAdvantage.gKeygtogunderstandinggmostgtheoriesgisgwhatgtheygsayga
ndgwhatgtheygdon’t.gNamegfourgorgfivegkeyglimitationsgtogthegtheorygofgcomparativegadvantage
.
Althoughginternationalgtradegmightghavegapproachedgthegcomparativegadvantagegmodelgduringgt
hegnineteenthgcentury,gitgcertainlygdoesgnotgtoday,gforgthegfollowinggreasons:
▪ Countriesgdognotgappeargtogspecializegonlygingthosegproductsgthatgcouldgbegmostgefficientlygpro
ducedgbygthatgcountry’sgparticulargfactorsgofgproduction.gInstead,ggovernmentsginterferegwithgc
omparativegadvantagegforgagvarietygofgeconomicgandgpoliticalgreasons,gsuchgasgtogachievegfullg
employment,geconomicgdevelopment,gnationalgself-sufficiencygingdefense-
relatedgindustries,gandgprotectiongofgangagriculturalgsector’sgwaygofglife.gGovernmentginterfere
ncegtakesgthegformgofgtariffs,gquotas,gandgothergnon-tariffgrestrictions.
▪ Atgleastgtwogofgthegfactorsgofgproduction,gcapitalgandgtechnology,gnowgflowgdirectlygandgeasilyg
betweengcountries,grathergthangonlygindirectlygthroughgtradedggoodsgandgservices.gThisgdirectgflo
wgoccursgbetweengrelatedgsubsidiariesgandgaffiliatesgofgmultinationalgfirms,gasgwellgasgbetweeng
unrelatedgfirmsgviagloansgandglicensegandgmanagementgcontracts.gEvenglaborgflowsgbetweengco
untries,gsuchgasgimmigrantsgintogthegUnitedgStatesg(legalgandgillegal),gimmigrantsgwithingthegEu
ropeangUniongandgothergunions.
▪ Moderngfactorsgofgproductiongaregmoregnumerousgthangingthisgsimplegmodel.gFactorsgconsideredg
ingtheglocationgofgproductiongfacilitiesgworldwidegincludeglocalgandgmanagerialgskills,gagdependa
bleglegalgstructuregforgsettlinggcontractgdisputes,gresearchgandgdevelopmentgcompetence,geducati
onalglevelsgofgavailablegworkers,genergygresources,gconsumergdemandgforgbrandgnameggoods,gm
ineralgandgrawgmaterialgavailability,gaccessgtogcapital,gtaxgdifferentials,gsupportingginfrastructure
g(roads,gports,gcommunicationgfacilities),gandgpossiblygothers.
, Chapterg1gMultinationalgFinancialgManagement:gOpportunitiesgandgChallengesg▪g4
▪ Althoughgthegtermsgofgtradegaregultimatelygdeterminedgbygsupplygandgdemand,gthegprocessg
bygwhichgthegtermsgaregsetgisgdifferentgfromgthatgvisualizedgingtraditionalgtradegtheory.gThe
ygaregdeterminedgpartlygbygadministeredgpricinggingoligopolisticgmarkets.
▪ Comparativegadvantagegshiftsgovergtimegasglessgdevelopedgcountriesgbecomegmoregdevelopedga
ndgrealizegtheirglatentgopportunities.gForgexample,gduringgthegpastg150gyears,gcomparativegadva
ntagegingproducinggcottongtextilesghasgshiftedgfromgthegUnitedgKingdomgtogthegUnitedgStatesgtog
JapangtogHonggKonggtogTaiwangandgtogChina.
▪ Thegclassicalgmodelgofgcomparativegadvantagegdidgnotgreallygaddressgcertaingothergissues,gsuchg
asgthegeffectgofguncertaintygandginformationgcosts,gthegrolegofgdifferentiatedgproductsgingimperf
ectlygcompetitivegmarkets,gandgeconomiesgofgscale.
Nevertheless,galthoughgthegworldgisgaglonggwaygfromgthegclassicalgtradegmodel,gtheggeneralgprincipl
egofgcomparativegadvantagegisgstillgvalid.gThegclosergthegworldggetsgtogtrueginternationalgspecializati
on,gthegmoregworldgproductiongandgconsumptiongcangbegincreased,gprovidedgthegproblemgofgequi
tablegdistributiongofgthegbenefitsgcangbegsolvedgtogthegsatisfactiongofgconsumers,gproducers,gandgp
oliticalgleaders.gCompletegspecialization,ghowever,gremainsgangunrealisticglimitinggcase,gjustgasgperf
ectgcompetitiongisgaglimitinggcasegingmicroeconomicgtheory.
8. ComparativegAdvantagegingthegTwenty-
FirstgCentury.gWithgreferencegtogthegtheorygofgcomparativegadvantage,gexplainghowgMNEsgoutso
urcegsomegservicesgtogemerginggmarketgeconomies.
Thegtheorygofgcomparativegadvantagegexplainsgthatgspecificgfirmsgorgnationsgmay,gingcomparisongt
ogothers,ghavegangadvantagegingproducinggagparticularggoodgorgservicegatgaglowergrelativegopportu
nitygcost.gThisgadvantagegmaygarisegduegtogdifferencesgingfactorgendowments,gtechnologicalgprogre
ss,gfavorablegrealgexchangegrate,gprotectionism,gimportgcontrols,getc.gSomegemerginggmarketgecono
miesghavegshowngcomparativegadvantagegingthegproductiongofglow-
costgmanufacturedgtangiblegcommodities,ghencegattractinggMNEs’gcapitalginflows.gButgingthegmoreg
developedgemerginggnationsgthatgallocategsubstantialgfundsgtogresearchgandginnovation,gsuchgasgIn
diagandgMalaysia,gtradegin
servicesghasgincreasedgfive-foldgovergtheglastgfivegdecades.gAccordingly,gMNEsghavegsteppedginto
thesegnationsgingordergtogmanufactureghigh-valuegandghigh-
techgmanufacturedggoods,gandgprovidegIT-gknowledgegservices.
9. Ganado’sgGlobalization.gAftergreadinggthegchapter’sgdescriptiongofgGanado’sgglobalizationgprocess,
ghowgwouldgyougexplaingthegdistinctionsgbetweenginternational,gmultinational,gandgglobalgcompani
es?
MULTINATIONAL FINANCIAL MANAGEMENT: OPPORTUNITIE
G G G
S AND CHALLENGES
G G
ALL CHAPTERS
G
1. GlobalizationgRisksgforgMNEs.gWasgglobalizationgresponsiblegforgthegslowdowngofgMNEgbusine
ssgduringgthegfinancialgcrisisgofg2008?
Ingtoday’sgglobalgeconomy,gthegprocessgthatgintegratesgworldgtrade,glinksgfinancialgmarkets,gandgpro
pelsgcross-bordergcapitalgflowsgisgcalledgfinancialgglobalization.gIngourgglobalizedgworld,g€4–
5gtrilliongingforeigngexchangegtransactionsgaregmadegdaily,gandgaroundg€20gtrilliongofggoodsgandgser
vicesgaregtradedgglobally.gAsgmuchgasgfinancialgglobalizationghasgproducedgmanygopportunitiesgforg
MNEs,gitghasgalsogintroducedgnewgthreats.gIrresponsiblegbankglendinggandgcreditgexcessesgledgtogfail
uresgofghighlygleveragedgbanksgandglargegbusinesses.gThegbustgcreditgandgsharpgeconomicgdownturng
rapidlygspreadgfromgthegUnitedgStatesgandgEuropegtogthegrestgofgthegworld.gConsequently,gglobalgpur
chasinggpowergandgconsumergconfidencegdroppedgroundgthegworld,gseverelygimpactinggsalesgrevenu
es.gMNEsgweregespeciallyghit,gnotgonlygbecausegtheirgglobalgsalesgdropped,gbutgalsogbecausegmuchgo
fgtheirgexcessgfundsgwereginvestedgingriskygassets.
2. MNEsgandgOperationgingGlobalgMarkets.gWhatgaregthegfactorsgthatgaffectgthegdecisionsg
ofgmultinationalgenterprisesgtogoperategingglobalgmarkets?
Thegmaingdetermininggfactorgforgoperatinggingagnewgmarketgisgthegcomparativegadvantagegingtermsg
ofgcostgandgrategofgproductivitygofgfactorsgofgproduction,gbettergregulations,glowergtaxation,gprote
ctionistgtradegbarriers,gstablegforeigngexchange,gandglargergmarkets.gOthergfactorsgthatgincentivize
gforeignginvestorsgaregsavingsgongtransportationgcostsgandgthegneedgtogregularlygadaptgtogchangin
gglocalgdemand.
3. EurocurrenciesgandgEurocurrencygMarkets.gWhatgaregthegmajorgeurocurrencies?gWhatgisgmeantgb
ygagEurocurrencygmarket?
, Chapterg1gMultinationalgFinancialgManagement:gOpportunitiesgandgChallengesg▪g2
Ageurocurrencygisgagfreelygtradablegforeigngcurrencygdepositedgingagdomesticgbankgofgagnationgthat
gisgnotgthegnativegcountrygissuinggthisgcurrency.g ThegmaingeurocurrenciesgaregthegUSgdollar,gthegeur
o,gthegBritishgpound,gandgthegJapanesegyen.gAgeurocurrencygmarketgisgagmoneygmarketgwheregfina
ncialginstitutionsgprovidegbankinggservicesgtogagvarietygofgindividual,gcorporate,gandgsovereigngcusto
mersgingeurocurrencies.
4. FragilitygofgthegGlobalgFinancialgMarketplace.gHowghasgthegglobalgfinancialgcrisisgexposedgthegfragil
itygofgassetsgandginstitutionsgofgthegglobalgsystem?
Ingtheginterlockedgfinancialgglobalgsystem,gthegfragilitygofgassetsgandginstitutionsgledgtogthegeruption
gofgthegglobalgfinancialgsector.gHighgriskgassetsgsuchgasgderivativesgweregtraded.gWhileginitiallyggene
ratedgtoghedgegagainstgrisksgandgcreategliquidity,gmanygofgthesegderivativesgweregmulti-
tieredgandghighlygopaque,gmakinggitgdifficultgtogassessgtheginherentgrisksgassociatedgwithgthem.gThe
ginstitutional
frameworkgforgderegulationgandglapsegsupervisiongleftgmanygfinancialginstitutionsgandginstrumentsg
unregulated.gMoreover,gtheglackgofgagglobalgregulatorygframeworkgleftginterbankgtransactionsghighly
gunsupervised.gAllgofgthesegfactors—ranginggfromgirresponsiblegissuancegandgtradingginghighgrisk
assets,gpoorgdomesticgsupervision,gandgtheglackgofgglobalgregulationgofginterbankgtransactions—
gexposedgthegfragilitygofgthegglobalgfinancialgframeworkgwhengthegglobalgfinancialgcrisisgerupted.
5. MNEsgandgLIBOR.gMostgMNEsgeithergtakegloansgingeurocurrenciesgorgissuegeurobondsgwithgagfloati
nggcoupongrategtiedgtogthegLIBOR.gExplainghowgMNEsgweregaffectedgbygthegLIBORgscandal.
AgfewglargegbanksgweregfinedgandgpenalizedgforgrigginggthegbenchmarkgLIBORgrate.gWhileglargegba
nksgborrowedgfundsg(asgwasgthegcasegduringgthegglobalgfinancialgcrisis),gtheygmadegtheirgquotesgbel
owgthegfairgmarketgrate.gRegulatorsgoftengassumedgthatgbanksgweregalsogtryinggtogbenefitgtheirgcor
porategcustomers,gallowinggMNEsgtogissuegnewgeurobondsgatglowergrates,ghencegsubstantiallygredu
cinggthegpurchasinggpowergofgthosegholdinggtheirgbonds.
6. Post-
LIBORgScandal.gWhygdogyougthinkgthegUKggovernmentghasgresolvedgagainstgthegtotalgeliminationgof
gLIBORgbenchmarksgaftergthegscandal?
ThegLondongInterbankgOfferedgRateg(LIBOR)gisgwidelygusedgasgagbenchmarkginterestgrategforghundre
dsgofgbillionsgofgdollarsgingfinancialgcontracts,gcorporategloans,gandgadjustablegrateghomegmortgage
sgandgconsumergloans.gIng2012,gthegLIBORgscandalgwasgexposed,grevealinggcollusiongbetweengand
inaccurateginterestgrategquotesgbygagdozenglargegBritishgbanks,gsomegofgwhichgfraudulentlygreported
, Chapterg1gMultinationalgFinancialgManagement:gOpportunitiesgandgChallengesg▪g3
theirgshort-
termgborrowinggcostsgsogasgtogprofitgfromgdeals.gFollowinggthegLIBORgscandal,gmanyghavegcalledgf
orgthegtotalgeliminationgofgLIBOR.gHowever,gasgitgremainsgthegonegandgonlygpervasiveginterestgrate
gbenchmark,gthegBritishggovernmentgdecidedgagainstgabandoninggitgandgresolvedgtogtake
measuresgtogsavegandgreformgit.gThegnumbergofgLIBORgquotesgwouldgdropgfromg150gtogtheg20gm
ostgimportantgones.gAmonggthegcurrenciesgtogbegphasedgoutgaregthegAustraliangdollar,gCanadiang
dollar,
NewgZealandgdollar,gDanishgkroner,gandgSwedishgkroner.gMoreover,gfourgofgtheglonger-
termgmaturitiesgwouldgbegeliminated.gAdditionally,gallgreportinggbanksgaregrequiredgtogsubmitgdocu
mentationgprovinggthegsourcesgofgthegratesgtheygaregquoting.gHowever,gthegcaveatgisgthatgmanygof
gthegratesgwould
remaingunsupportedgbygactualginterbankgtransactions,graisinggdoubtsgaboutgthegaccuracygofglong
er-gtermgLIBORgquotes.
7. LimitationsgofgComparativegAdvantage.gKeygtogunderstandinggmostgtheoriesgisgwhatgtheygsayga
ndgwhatgtheygdon’t.gNamegfourgorgfivegkeyglimitationsgtogthegtheorygofgcomparativegadvantage
.
Althoughginternationalgtradegmightghavegapproachedgthegcomparativegadvantagegmodelgduringgt
hegnineteenthgcentury,gitgcertainlygdoesgnotgtoday,gforgthegfollowinggreasons:
▪ Countriesgdognotgappeargtogspecializegonlygingthosegproductsgthatgcouldgbegmostgefficientlygpro
ducedgbygthatgcountry’sgparticulargfactorsgofgproduction.gInstead,ggovernmentsginterferegwithgc
omparativegadvantagegforgagvarietygofgeconomicgandgpoliticalgreasons,gsuchgasgtogachievegfullg
employment,geconomicgdevelopment,gnationalgself-sufficiencygingdefense-
relatedgindustries,gandgprotectiongofgangagriculturalgsector’sgwaygofglife.gGovernmentginterfere
ncegtakesgthegformgofgtariffs,gquotas,gandgothergnon-tariffgrestrictions.
▪ Atgleastgtwogofgthegfactorsgofgproduction,gcapitalgandgtechnology,gnowgflowgdirectlygandgeasilyg
betweengcountries,grathergthangonlygindirectlygthroughgtradedggoodsgandgservices.gThisgdirectgflo
wgoccursgbetweengrelatedgsubsidiariesgandgaffiliatesgofgmultinationalgfirms,gasgwellgasgbetweeng
unrelatedgfirmsgviagloansgandglicensegandgmanagementgcontracts.gEvenglaborgflowsgbetweengco
untries,gsuchgasgimmigrantsgintogthegUnitedgStatesg(legalgandgillegal),gimmigrantsgwithingthegEu
ropeangUniongandgothergunions.
▪ Moderngfactorsgofgproductiongaregmoregnumerousgthangingthisgsimplegmodel.gFactorsgconsideredg
ingtheglocationgofgproductiongfacilitiesgworldwidegincludeglocalgandgmanagerialgskills,gagdependa
bleglegalgstructuregforgsettlinggcontractgdisputes,gresearchgandgdevelopmentgcompetence,geducati
onalglevelsgofgavailablegworkers,genergygresources,gconsumergdemandgforgbrandgnameggoods,gm
ineralgandgrawgmaterialgavailability,gaccessgtogcapital,gtaxgdifferentials,gsupportingginfrastructure
g(roads,gports,gcommunicationgfacilities),gandgpossiblygothers.
, Chapterg1gMultinationalgFinancialgManagement:gOpportunitiesgandgChallengesg▪g4
▪ Althoughgthegtermsgofgtradegaregultimatelygdeterminedgbygsupplygandgdemand,gthegprocessg
bygwhichgthegtermsgaregsetgisgdifferentgfromgthatgvisualizedgingtraditionalgtradegtheory.gThe
ygaregdeterminedgpartlygbygadministeredgpricinggingoligopolisticgmarkets.
▪ Comparativegadvantagegshiftsgovergtimegasglessgdevelopedgcountriesgbecomegmoregdevelopedga
ndgrealizegtheirglatentgopportunities.gForgexample,gduringgthegpastg150gyears,gcomparativegadva
ntagegingproducinggcottongtextilesghasgshiftedgfromgthegUnitedgKingdomgtogthegUnitedgStatesgtog
JapangtogHonggKonggtogTaiwangandgtogChina.
▪ Thegclassicalgmodelgofgcomparativegadvantagegdidgnotgreallygaddressgcertaingothergissues,gsuchg
asgthegeffectgofguncertaintygandginformationgcosts,gthegrolegofgdifferentiatedgproductsgingimperf
ectlygcompetitivegmarkets,gandgeconomiesgofgscale.
Nevertheless,galthoughgthegworldgisgaglonggwaygfromgthegclassicalgtradegmodel,gtheggeneralgprincipl
egofgcomparativegadvantagegisgstillgvalid.gThegclosergthegworldggetsgtogtrueginternationalgspecializati
on,gthegmoregworldgproductiongandgconsumptiongcangbegincreased,gprovidedgthegproblemgofgequi
tablegdistributiongofgthegbenefitsgcangbegsolvedgtogthegsatisfactiongofgconsumers,gproducers,gandgp
oliticalgleaders.gCompletegspecialization,ghowever,gremainsgangunrealisticglimitinggcase,gjustgasgperf
ectgcompetitiongisgaglimitinggcasegingmicroeconomicgtheory.
8. ComparativegAdvantagegingthegTwenty-
FirstgCentury.gWithgreferencegtogthegtheorygofgcomparativegadvantage,gexplainghowgMNEsgoutso
urcegsomegservicesgtogemerginggmarketgeconomies.
Thegtheorygofgcomparativegadvantagegexplainsgthatgspecificgfirmsgorgnationsgmay,gingcomparisongt
ogothers,ghavegangadvantagegingproducinggagparticularggoodgorgservicegatgaglowergrelativegopportu
nitygcost.gThisgadvantagegmaygarisegduegtogdifferencesgingfactorgendowments,gtechnologicalgprogre
ss,gfavorablegrealgexchangegrate,gprotectionism,gimportgcontrols,getc.gSomegemerginggmarketgecono
miesghavegshowngcomparativegadvantagegingthegproductiongofglow-
costgmanufacturedgtangiblegcommodities,ghencegattractinggMNEs’gcapitalginflows.gButgingthegmoreg
developedgemerginggnationsgthatgallocategsubstantialgfundsgtogresearchgandginnovation,gsuchgasgIn
diagandgMalaysia,gtradegin
servicesghasgincreasedgfive-foldgovergtheglastgfivegdecades.gAccordingly,gMNEsghavegsteppedginto
thesegnationsgingordergtogmanufactureghigh-valuegandghigh-
techgmanufacturedggoods,gandgprovidegIT-gknowledgegservices.
9. Ganado’sgGlobalization.gAftergreadinggthegchapter’sgdescriptiongofgGanado’sgglobalizationgprocess,
ghowgwouldgyougexplaingthegdistinctionsgbetweenginternational,gmultinational,gandgglobalgcompani
es?
