ECON254 THEORY OF THE FIRM. TUTORIAL 5. GROWTH, MANAGERIAL THEORIES OF THE FIRM AND THE ECONOMICS OF MULTINATIONAL ENTERPRISE.
1. Dunning’s Eclectic Theory.
Read the following short case study and use Dunning’s eclectic paradigm to explain why IBM has decided to pull out of production of PCs at Zelenograd and revert to exporting. Hint: Dunning’s paradigm argues that firms will set up overseas operations where three conditions hold:
• The firm has Ownership advantages – things the firm is able to do particularly well relative to its rivals
• There are Locational advantages – there are good reasons why the overseas location is more favourable than supplying ...view middle of the document...
Mr. Alexei Yeliseyev, the IBM project manager, said Russia’s parliament had stripped IBM of previous government-granted exemptions, allowing it to import components and manufacturing equipment free of tax, while Moscow authorities have failed to deliver on promises to buy up to 100,000 IBM computers.
He said appeals to government ministers to redress tax imbalances appeared to have fallen on deaf ears. “My conviction is that Russia will only develop its industry if it creates a system of laws to support foreign investors and opens the door to famous companies like IBM,” he said.
IBM started production of personal computers at the Kvant plant in Zelenograd in 1993 believing it would give it a significant cost advantage over imported products. The US company invested about $2million in equipment and training to enable one of Russia’s leading computer manufacturers to produce IBM branded computers from imported components. In total, the plant manufactured 40,000 computers. Mr. Yeliseyev said the decision to stop manufacturing IBM computers would result in some job losses among the plant’s highly qualified employees.
IBM will continue to import computers into Russia, which it still views as a promising growth market. But industry experts suggest the Russian computer market has been temporarily hit by problems among Russia’s banks, which are among the biggest buyers of computer technology.
Adapted from Financial Times, 28th February 1996.
2. Read the article “Sandler: This time will be different” What evidence does this article give regarding the separation of ownership from control and with which model of the firm is the evidence most consistent
Sandler: this time will be different
New NatWest chief tries to convince sceptics that the under-fire bank will finally sort out its mess.
NatWest has had as many chances to reform as a rebel drunk at an AA meeting. Every time it says it will change and every time it fails to do so. But this time it is different. Or so NatWest’s new chief operating officer, Ron Sandler, is urging the market to believe. His talk is worth listening to because Sandler, unlike previous chiefs, has admitted that the bank has a problem. Now it can finally move to Step-Two – resolving the problem. Sandler says: “NatWest has in the past been too keen to do too many things that it wasn’t capable of. Its initiatives have not been as successful as was hoped. But we are now going through a conventional change process”.
Sceptics claim they have heard all this before. The optimists can see something is different. This time, the words are coming from Sandler, the former chief executive of Lloyd’s of London who oversaw the steady recovery of the insurance market from billion-pound losses in the early 1990s. “At the end of the day we can only convince shareholders by focusing our management resourcing on delivering what we are mandated to deliver”, he says. The mandate was laid out clearly in...