Quels sont les fondements du commerce international ? [Partie 3/4 : les firmes multinationales FMN]

What are the Foundations of International Trade and the Internationalization of Production?

Impact of Multinational Firms on International Trade

• The video discusses how international trade can stimulate a country's production and economic growth, emphasizing competitiveness in exports.

• It raises the question of why some countries, like France and the United States, have a structurally negative trade balance while others, such as China, maintain a surplus through high export levels.

• Competitiveness is defined as the ability to gain market share against competitors; this section will explore how firm productivity affects national competitiveness.

Understanding Multinational Firms

• A multinational firm (FMN), also known as a transnational firm (FTN), operates at least one subsidiary abroad. A subsidiary is controlled by its parent company.

• Starbucks serves as an example of a multinational with numerous subsidiaries worldwide, including locations in various countries except for North Korea.

Forms of Competitiveness

• Multinational firms can enhance two types of competitiveness: price competitiveness and non-price competitiveness.

• Price competitiveness refers to offering products at lower prices than competitors, influenced by labor costs, capital costs, overall productivity, and taxation policies.

Strategies for Cost Reduction

• To reduce production costs and offer lower selling prices, multinationals often establish operations in countries with cheaper labor like China or India. Xiaomi exemplifies this strategy by providing lower-priced products compared to competitors.

Non-price Competitiveness Factors

• Non-price competitiveness involves factors beyond pricing such as quality, innovation, brand image. For instance, Apple’s iPhones command higher prices due to strong brand perception despite their cost being equivalent to an entire minimum wage salary in some regions.

Attractiveness Through Foreign Direct Investment (FDI)

• The attractiveness of a country can be measured through foreign direct investment (FDI), which represents capital flows used to finance subsidiaries. Higher FDI indicates greater national competitiveness.

Enhancing National Competitiveness

• Factors that improve national competitiveness include labor cost efficiency, workforce qualifications, labor market flexibility, presence of innovation hubs like Silicon Valley in the U.S., reliable institutions, and infrastructure quality.

Summary Diagram Explanation

• A diagram summarizes that a country's competitiveness is linked to the productivity of firms within it; productive firms enhance both price and non-price competitiveness leading to increased exports and attracting more FDI.

Multifaceted Competitive Strategies

Internationalization of the Value Chain

Fragmentation of Production Processes

• Multinational firms fragment the production process into several stages based on each country's advantages, a concept previously discussed regarding value chain fragmentation.

• This internationalization of the production process is sometimes referred to as DIPP (Division Internationale du Processus Productif), where each production stage is located in a country according to its resource endowments.

Stages of Production

• The production process is divided into three main stages:

• Pre-production (R&D and design)

• Production (manufacturing and assembly)

• Post-production (marketing and after-sales service).

• The "smile curve" illustrates that value creation occurs primarily at the pre-production and post-production stages, which are typically situated in developed countries like the USA, Japan, and Germany.

Competitiveness Factors

• Low-value-added activities such as assembly are often located in developing countries like India or Bangladesh, enhancing price competitiveness due to lower labor costs.

• By dividing these production stages strategically, firms enhance both price and non-price competitiveness through optimized location choices.

Summary of Key Insights

• The video summarizes how firm productivity impacts national competitiveness. A competitive country has businesses that excel in both price and non-price factors.

• Price competitiveness allows companies to offer lower prices than competitors, while non-price competitiveness involves quality, brand image, etc.

Attracting Foreign Investment

• Competitive nations attract foreign direct investment (FDI), which consists of capital flows from multinational firms establishing subsidiaries abroad.