Geography Reference
In-Depth Information
lost through industrial disputes. As such, while the shareholders desire
maximum profits, the career performance of each of these various key
decision-makers within the organization is evaluated on different criteria.
Under these conditions, the conflicting goals critique suggests that firms
will aim to make decisions in order to 'satisfice' rather than to optimize. In
other words, the firms will aim to achieve a satisfactory level of perform-
ance across a range of measures. In particular, the firm will initially aim to
achieve a level of profit sufficient to avoid both shareholder interference
in directors' activities and the threat of a takeover. Once this objective is
achieved, the other various goals of the firm can be satisfied.
However, in situations of limited information, it may be almost as
difficult to satisfice as it is to optimize. In such circumstances Baumol
(1962) argues that firms will focus on sales revenue maximization as the
short-run objective of their decision-making, as it implies the maximum
market share for the firm in the short term. Market share provides a
very clear and understandable indicator of a firm's position in a market,
and largely reflects its degree of monopoly power. This is important
because the degree of a firm's monopoly power is also indicative of its
ability to deter potential market entrants via techniques such as limit
pricing and cross-subsidizing, whereby the firm will artificially reduce
the prices of certain goods or services in order to deter potential com-
petitors. The ability to undertake such predatory pricing measures is a
good indicator of a firm's capacity to defend its position, and is there-
fore perceived by many observers to be the best indicator of a firm's
long- run performance.
While these behavioural arguments reflect a more general critique of
rationality within microeconomics as a whole, they have been applied
particularly extensively in the field of economic geography, and especially
regarding questions of firm location and re-location behaviour (Lever
1987). The reason is that information concerning space and location is
very limited, due to the inherent heterogeneity of land, real estate, and
local economic environments. Moreover, in terms of MNE strategies, this
heterogeneity is magnified as we are considering the question of different
locations across different countries and cultures. Therefore, when looking
at location issues, not only would it appear that the ability of the firm to
behave rationally is very much bounded by the limited information avail-
able to it, but also that the inherent complexity of modern multinational
firms will very much militate against rational choices. The result of these
behavioural critiques is therefore that MNEs will consequently make loca-
tion decisions primarily in order to achieve satisfactory outcomes across
a range of alternative goals, of which profit maximization is simply one
objective. The ability of the profit-maximizing models outlined above to
