Both External and Internal Factors Affect the Operation of an MNE

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The Answer is Some examples of external factors are government policies, political risk, and exchange rate changes between the host country and the home country. Internal factors include firm-specific advantages and transfer pricing. The multinational firm may have to incur costs from external factors. For example, because of competition, the multinational firm may not be able to pass on costs of government regulations to consumers and instead have to accept lower profits. Internal factors such as transfer pricing are within the control of the firm and the firm can use these advantages to increase its profits, for instance, by shifting reported profits to low-tax countries.

Both External and Internal Factors Affect the Operation of an MNE

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