Optimal Operating Policies for a Multinational Company under Varying Market Economics

DOI: 10.4236/me.2013.411073   PDF   HTML     3,351 Downloads   4,811 Views  


This paper proposes a mathematical programming model for Multi-National Corporations (MNCs) by considering both the flexibility of exchange rate and market price uncertainties. The results show that the factory in a host country should supply the products demanded by the home country for the next period when exchange rate decreases. The quantity of products being produced and shipped should be adjusted according to the variation of market-price. Conversely, a MNC in the host country should produce products ahead of time when exchange rate increases and must adjust quantity of production and inventories according to the variation of market-price.

Share and Cite:

S. Chang, "Optimal Operating Policies for a Multinational Company under Varying Market Economics," Modern Economy, Vol. 4 No. 11, 2013, pp. 673-680. doi: 10.4236/me.2013.411073.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] J. M. Campa, “Entry by Foreign Firms in the United States under Exchange Rate Uncertainty,” Review Economic Statistic, Vol. 74, No. 5, 1993, pp. 614-622.
[2] A. Huchzermeier and M. A. Cohen, “Valuing Operational Flexibility under Exchange Rate Risk,” Operational Research, Vol. 44, No. 1, 1996, pp. 100-113.
[3] J. Darby, A. Hughes-Hallett, J. reland and L. Piscitelli, “The Impact of Exchange Rate Uncertainty on the Level of Investment,” Economic Journal, Vol. 109, No. 454, 1999, pp. 55-67.
[4] Z. M. Mohamed, “An Integrated Production-Distribution Model for a Multi-National Company Operating under Varying Exchange Rate,” International Journal of Production Economics, Vol. 58, No. 1, 1999, pp. 81-92.
[5] D. Rodrik, “Policy Uncertainty and Private Investment in Developing Countries,” Journal Development Economic, Vol. 36, No. 2, 1991, pp. 229-242.
[6] C. J. Vidal and M. Goetschalckx, “Modeling the Effect of Uncertainties on Global Logistics System,” Journal of Business Logistics, Vol. 21, No. 1, 2000, pp.95-120.
[7] A. L. McDonald, “Of Floating Factories and Mating Dinosaurs,” Harvard Business Review, Vol. 64, No. 6, 1986, pp. 82-86.
[8] J. E. Hodder and J. V. Jucker, “International Plant Location under Price and Exchange Rate Uncertainty,” Engineering Costs and Production Economics, Vol. 9, No. 1-3, 1985, pp. 225-229.
[9] D. De Meza and F. Van Der Ploeg, “Production Flexibility as a Motive for Multinationality,” Journatl Industrial Economics, Vol. 35, No. 3, 1987, pp. 343-352.
[10] B. Koqut and N. Kulatilaka, “Multinational Flexibility and the Theory of Foreign Direct Investment,” Working Paper, University of Pennsylvania, Philadelphia, 1988.
[11] L. Li, E. Porteus and H. Zhang, “Optimal Operating Policies for Multi-Plant Stochastic Manufacturing Systems in a Changing Environment,” Management Science, Vo. 47, No. 11, 2001, pp.1539-1551.
[12] S. Dasu and L. Li, “Optimal Operating Polices in the Presence of Exchange Rate Variability,” Management Science, Vol. 43, No. 5, 1997, pp. 705-722.
[13] M. A. Cohen and H. L. Lee, “Strategic Analysis of Integrated Production-Distribution Systems: Models and Methods,” Operations Research, Vol. 36, No. 2, 1988, pp. 216-228. http://dx.doi.org/10.1287/opre.36.2.216
[14] N. Kulatilaka and B. Koqut, “Operating Flexibility, Global Manufacturing, and the Option Value of a Multinational Network,” Management Science, Vol. 40, No. 1, 1994, pp. 123-139.
[15] M. A. Cohen and S. Mallik, “Global Supply Chains: Research and Applications,” Production and Operations Management, Vol. 6, No. 3, 1997, pp. 193-210.
[16] J. T. Harvey and S. F. Quinn, “Expectations and Rational Expectations in the Foreign Exchange Market,” Journal of Economic Issues, Vol. 31, No. 2, 1997, pp. 615-622.
[17] T. Kaihara, “Supply Chain Management with Market Economics,” International Journal of Production Economics, Vol. 73, No. 1, 2001, pp. 5-14.

comments powered by Disqus

Copyright © 2020 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.