Critically compare and contrast three theories of the multinational Essay

Critically compare and contrast three theories of the multinational firm. Which best explains firm behaviour and why - Essay Example The primary drive operating behind their decision to outspread are the cost benefits and profit potentials which lie in different locations (Maheshwari, 1997, p. 246). However, there are certain aspects which influence the profit and cost factors in a certain region. Those are the very elements which instigate the businessmen to spread out. In fact, theories have been framed by eminent observers in the past, to comprehend the factors which actually guide the production decisions of trans-national companies. Three fundamental factors are ownership, location and internalisation aspects which taken together form the essence of OLI Theory of International Production. This however, is part of the neo-classical school of thought (Taylor & Thrift, 1986, p. 9). Likewise there is the Marxist economic theory or the Neo-Imperialist views which support the decisions taken by trans-national companies to spread out their businesses to different nations around the world. Capitalist economies tend t o accumulate a large volume of resources at home which they are restricted from making use of at home due to restrictions imposed over their employment. Hence, they have little option but to generate profit out of their surpluses through deploying them across national borders. Thirdly, the Neo-Fundamentalist Marxist principles say that the primary enticement behind spreading out their businesses is that the industries which gradually acquire a monopolistic position, start enjoying the advantage of huge surpluses. Due to a limited scope for employing them in the nation where they belong, the industrialists deploy them in foreign lands where they have greater prospects of reaping profits (Jenkins, 1987, p. 447-451). The present paper discusses the similarities and differences between each of the three types of economic theories stated above to assess the factors which induce foreign investors towards expanding their businesses across nations. Finally, an evaluation about the theory mo st applicable in context of business houses today will be made as a concluding note. Chapter 2 – Theoretical Framework 2.1 Marxist or the Neo-Imperialist economic theory According to the views of Marxist economists, the developed and developing economies are complementary to one another and make up the entire global system. However, they also emphasise that the latter are usually the ones who are exploited by the former so that there is a continued outflow of surplus resources from the reserves of developing nations to the already burgeoning stock of the developed nations. The essence of the theory is the monopolisation of industrial houses which leads to an accumulation of huge sums of profits in the capitalist nations. On the other hand, the prevalence of anti-trust laws restricts an expansion of their businesses within the domestic frontier through forming cartels. Thus, the surpluses which are reaped stay idle and hence, attain a stagnant rate of growth which is not desir ed by the private producer (Jenkins,