Showing papers in "Managerial and Decision Economics in 1981"

The eclectic theory of international production: A case study of the international hotel industry

Abstract: This paper presents comprehensive data on the growth, structure and forms of involvement of multinational enterprises in the international hotel industry, and uses this data to provide empirical support for the eclectic theory of international production. Our understanding of the international hotel industry is that the ownership of a hotel often has the characteristics of portfolio investment and that the owners may have little knowledge of hotel operations. In these circumstances they will invariably employ a professional management company to run the hotel under a long term contract providing them with full control over the operation of the hotel. A particular feature of this paper is therefore to distinguish between, what we term, ‘equity-based control’ and ‘contract-based control’ of the enterprise and to point out the implications of this distinction for the analysis of the multinational enterprise.

The determinants of foreign direct investment: An analysis of US manufacturing industries

Abstract: This study explores the determinants of foreign direct investment by analyzing the variation across US manufacturing industries in the extent of outward foreign direct investment. Three types of industry characteristics are hypothesized to explain this variation. Empirical support is found for four sources of ownership-specific advantages favoring foreign direct investment, new technology created through research and development, marketing abilities, organizational techniques and capital cost advantages. Support is found for the role of production scale economies in favoring centralization and hindering foreign direct investment, but results suggest only a weak role for transport costs in favoring decentralization and foreign direct investment. Producer concentration, perhaps reflecting oligopolistic competition, is positively related to foreign direct investment.

A test of internalization theory

Abstract: In a world system of natural and government induced market imperfections we have observed the development of the multinational enterprise as an efficient organizational response. The internal market of the multinational enterprise is the mechanism for the generation and use of its firm specific advantage. When this knowledge advantage has been fostered by Research and Development the multinational enterprise seeks to avoid its dissipation and generally prefers centralized control. This paper examines the implications of internalization theory for the Research and Development function. It tests for significant differences in Research and Development performed by parent, subsidiary and independent firms of similar size, using Canada as a case study.

The effect of patent expiration on the market position of drugs

Abstract: A sample of 12 major drugs is used to examine the effect of patent expiration on market shares and prices in the US market. The results indicate that patent expiration has, at least for the first few years, only a small effect on the market shares and prices of the original drags. Efforts to increase price competion in drug markets, however, may change this situation in the future. The declining effective patent period for drugs and the declining profitability of drug innovation raise the concern that efforts to foster price competition might result in lower levels of innovation.

Market servicing by multinational manufacturing firms: Exporting versus foreign production

Abstract: The foreign market servicing behaviour of multinational manufacturing firms evolves over time as a result of the firms' reaction to internal and external pressures. The interplay of immobile ‘location factors’ with internal ‘ownership factors’ under the control of individual enterprises exercises a powerful influence on the choice between exporting and foreign investment. Plant economies of scale encourage exporting, whilst firm level economies of scale, such as the internalization of the fruits of research, may predispose the firm towards foreign investment. Socio-political and cultural elements arising particularly from the nationality of ownership of the firm also influence market servicing strategy.

Research into public attitudes and the attitudes of the public to inflation

Abstract: The purpose of this paper has been to compare research evidence related to consumer attitudes to specific price increases and to inflation as a general phenomenon with attitudes of British governments as expressed in government anti-inflation policies. In carrying out the enquiries the aim was to bridge the gap between economics and psychology. The findings indicate that the learning and relearning of prices in time of inflation presents considerable problems; so does communication between governments and the public. One message which would appear to have got through to governments is that of consumer discontent with rising prices. In response governments have at times introduced price restraint policies. The author suggests that the existence of inflation has shifted the focus of attention from satisfactions to dissatisfactions and that it may be necessary therefore to examine which factors are most important for consumer studies and for government policies: consumer attempts to maximize their satisfactions or their attempts to minimize their discontents?

Consumer demand theory, goods and characteristics: Breathing empirical content into the Lancastrian approach

Abstract: To begin with, it is argued that consumer demand theory has resulted in narrowly econometric more than broadly managerial applications. Further, Lancaster's recognition of the intrinsic attributes of goods has not been adequately exploited. Lancaster is summarized and appraised and empirical work to date reviewed. Finally a test of the characteristics hypothesis is given, using survey data on beer consumption. Subjectivity of choice is explicitly recognized and factor analysis is used to evaluate the components of demand of which quality and price variables appear to dominate. With the matching of the people-characteristics features (demand) and the technical goods-characteristics attributes (supply) a method of predicting demand is derived. This methodology may be used for a wide range of consumer goods.

The sales response to advertising: A reconsideration

Abstract: The paper surveys briefly the literature on the shape of the sales-advertising response relationship. Knowledge of this relationship is an important requirement for optimal marketing decisions. The role of theory is to specify the structure of models for testing. The paper presents a plausible model of this relationship based upon the consumer's response to advertising when qualitative uncertainty exists in a market. The relationship is seen to contain a ‘catastrophe change’ or discontinuity when certain assumptions are made about optimizing behaviour. The implications for marketing strategy and optimal levels of promotional outlays are discussed.

The cost of capital in the international firm

Abstract: This paper argues that the international firm should use the firm's global weighted average cost of capital to evaluate investment decisions, domestic and international, and to judge the performance of affiliates at home and abroad. The paper discusses the adjustment necessary to quantitate exchange risk and to account for financing that is subsidized or tied to particular investments. Foreign subsidiaries, it is argued, do not have an independent capital structure because their liabilities are explicitly or implicitly the obligation of the parent firm.

Consumer safety and the regulation of industry

Abstract: The need for regulation to protect the consumer from unsafe products stems from the lack of full information. The extent of these imperfections is examined and it is argued that there are market pressures on manufacturers to produce safer products and that voluntary regulation can play a useful role before mandatory regulations are introduced. In setting targets it must be acknowledged that there are differences between products and between consumers and particularly that there will be costs associated with attempts to cure the consequences of imperfections. Recent trends in the US and British safety policy are assessed in this light.

Product liability: The special problem of medicines

Abstract: Product liability has been the subject of increasing interest in many countries of the world over the last few years. There has been a developing public view that the manufacturers of all kinds of products should take greater responsibility for them. The product liability problems which can arise from the use of medicines by man have received particular attention; the special features of such products giving rise to misunderstandings. The paper views the present position from the point of view of the pharmaceutical industry in the UK. Recent developmends arising in Europe and elsewhere are described.

Foreign exchange risk: Relevance and management

Abstract: Few senior corporate managers profess even a limited understanding of foreign exchange exposure management. This article offers a description of foreign exchange risk and the characteristics and costs of risk hedging alternatives. Because the costs of protection from exchange market fluctuations are company-specific, the cost differentials explain why some managers hedge extensively while others choose to bear the risk.

Unionism and the public sector

Abstract: It is incorrect and misleading to speak of unionization as a ‘human right’. The only human right is ‘self-ownership’, i.e. to pursue goals with one's own abilities but with no force or fraud against others. Government cannot dispense rights, only privileges and protections to some at the expense of others. A minimal degree of coercion exercised by government is unavoidable. But labor unions are not governments. Government has granted significant privileges to unions in the private sector, but such are not appropriate for public sector unions.

Multinational corporations: Trade and investment across the East‐West divide

Abstract: East-West trade and investment remains a preserve of the multinational corporations due to their resources in finance, manpower and production which enables them to absorb the attendant costs of lengthy negotiations; to meet the occasional high-volume order placed by a state foreign trade enterprise purchasing on behalf of an entire sector of industry; to aid the state foreign trade enterprise by sourcing from a world-wide network so as to alleviate currency or distribution problems; and to help with the provision of finance or to agree to part payment by means of the resultant product produced under licence. Size is an important factor, and many of the joint ventures concluded over the last ten years have been for massive investment projects. These joint ventures are of a contractual type and referred to as industrial cooperation agreements' which involve repurchase of the goods produced under licence, often to a value which repays over a specified time the capital borrowed plus interest charges. These counter-trade agreements have become more popular in the Eastern bloc because of their ‘self-financing’ principle but are beginning to face mounting criticism in the West, currently facing a trade recession and the echoing pleas for trade protectionism to curb the threat of cheap Eastern imports upon Western job security. Industrial cooperation has been diverted towards the more export intensive branches of the socialist economies and has led to the increasing size and importance of certain of their production enterprises. This has created Western fears of the advent of the ‘socialist multinationals’ or Socialist Common Enterprises. However, industrial cooperation is a recent phenomenon, and if only by default, a strategy will emerge in future years as to the pattern and behaviour of East-West multinational arrangements.

Innovation and pricing in the Dutch drug industry

Abstract: The Dutch pharmaceutical industry is characterized by a high degree of innovative rivalry resulting in frequent rises and falls in market shares by both firms and products. Conventional concentration ratios, Herfindahl indices and market share stability measures are not highly correlated. The market, however, does display price sensitivity. Elasticity of demand for new products is inversely related to their incremental quality and directly related to their age.

Technology and market structure in the analysis of exchange

Abstract: Economists treat the ‘market’ as a black box in which prices rise and fall to equate supplies with demands. Obviously, however, markets are usually collections of institutions. Using conventional methods of economic analysis, it is argued that certain physical characteristics of commodities, the technologies of their production and use, and buyer and seller concentration lead to the development of particular institutional arrangements composing markets. These institutional arrangements are efficient in the sense that they require the least use of resources in effecting transactions.

Labour market segmentation and wage dynamics

Abstract: The article contains results of a quantitative empirical investigation into the effects of labour market segmentation on wage dynamics in total industry as well as in several industrial branches in West Germany. By testing correlations between several indicators of earnings and the labour market it is shown that wage dynamics, in so far as they are determined by shop floor bargaining, can be explained at least as well and partly even better by indicators of certain partial labour markets than by conditions of the general labor market (i.e. the traditional Philipps approach).