88 International Organization nique)when contemplating the establishment of a local plant.23 Rather they com- pare the marginal cost of a known technique with the total cost of designing a new process to accommodate local factor proportions.Since the known technique has been developed in the home country (the United States,Western Europe,or Japan), it is likely to economize on labor.Under such conditions,the implantation of techniques that do not use local factor proportions most efficiently is consistent with profit maximizing behavior,and would deviate from both economic optimality24 and from the behavior of local firms. This hypothesis has received some support in empirical testing.But the range of response of multinational corporations to local conditions appears to be highly flexible.Several studies have shown that the corporate preference for sticking with the capital-intensive techniques of the home country is heavily influenced by the extent of competition within the host country market.Wayne Yeoman found,for example,that the more price elastic the demand for a US-based multinational's products in a low-wage country (i.e.,the greater the price competition faced by the firm),the more the production techniques employed by the firm in that country differed in labor intensity from the techniques employed by the same firm in the United States.25 Louis Wells has shown that foreign-owned firms that compete primarily on the basis of price in a developing country are more likely to use labor-intensive techniques than those that compete primarily on the basis of brand names.26 Furthermore,multinational enterprises that have set up"'offshore"pro- duction facilities to export textiles or electronics to developed country markets have generally been driven by price competition to locate their labor-intensive stages in the Third World. This suggests that to the extent host country authorities can encourage competi- tion(among foreign investors or between foreign investors and local firms)in their domestic markets,they can achieve better results from multinational firms in terms of labor-intensive production technologies.Furthermore,once the development of such technologies is stimulated in one part of a multinational system,their use may spread rapidly throughout the corporations'network in the Third World.Ford's low-cost"modern Model T''(the Fiera),for example,is designed to be produced in small job shops where brake presses and simple welding jigs replace the stamping dies and automated equipment that make upwards of two hundred welds simultane- ously in Ford's US plants.The company decided to experiment with this type of production technology explicitly so that if it is successful in the first plant in the Philippines it can be subsequently introduced throughout the Asia-Pacific region.27 3Cf.Walter A.Chudson and Louis T.Wells,Jr.,'The Acquisition of Proprietary Technology by Developing Countries from Multinational Enterprises:A Review of Issues and Policies,"United Nations Study Group on the Multinational Enterprise,1973. 4It should be noted,however,that expenses incurred in the search for new technologies or production techniques are real costs. 25Wayne A.Yeoman,"Selection of Production Processes for the Manufacturing Subsidiaries of U.S. Based Multinational Corporations,D.B.A.thesis,Harvard Business School (Boston:1968). 2Louis T.Wells,Jr.,Economic Man and Engineering Man:Choice in a Low-Wage Country."Public Policy Vol.21 (1973). 2Chalmers Goyert,"Ford in Asia:A Case Study,"Council on Religion and Intemational Affairs. Aspen,Colorado;Aspen,Colorado,April 27.1974.88 International Organization nique) when contemplating the establishment of a local plant.23 Rather they com￾pare the marginal cost of a known technique with the total cost of designing a new process to accommodate local factor proportions. Since the known technique has been developed in the home country (the United States, Western Europe, or Japan), it is likely to economize on labor. Under such conditions, the implantation of techniques that do not use local factor proportions most efficiently is consistent with profit maximizing behavior, and would deviate from both economic optimality24 and from the behavior of local firms. This hypothesis has received some support in empirical testing. But the range of response of multinational corporations to local conditions appears to be highly flexible. Several studies have shown that the corporate preference for sticking with the capital-intensive techniques of the home country is heavily influenced by the extent of competition within the host country market. Wayne Yeoman found, for example, that the more price elastic the demand for a US-based multinational's products in a low-wage country (i.e., the greater the price competition faced by the firm), the more the production techniques employed by the firm in that country differed in labor intensity from the techniques employed by the same firm in the United States.25 Louis Wells has shown that foreign-owned firms that compete primarily on the basis of price in a developing country are more likely to use labor-intensive techniques than those that compete primarily on the basis of brand names.26 Furthermore, multinational enterprises that have set up "offshore" pro￾duction facilities to export textiles or electronics to developed country markets have generally been driven by price competition to locate their labor-intensive stages in the Third World. This suggests that to the extent host country authorities can encourage competi￾tion (among foreign investors or between foreign investors and local firms) in their domestic markets, they can achieve better results from multinational firms in terms of labor-intensive production technologies. Furthermore, once the development of such technologies is stimulated in one part of a multinational system, their use may spread rapidly throughout the corporations' network in the Third World. Ford's low-cost "modern Model T" (the Fiera), for example, is designed to be produced in small job shops where brake presses and simple welding jigs replace the stamping dies and automated equipment that make upwards of two hundred welds simultane￾ously in Ford's US plants. The company decided to experiment with this type of production technology explicitly so that if it is successful in the first plant in the Philippines it can be subsequently introduced throughout the Asia-Pacific region.27 23Cf. Walter A. Chudson and Louis T. Wells, Jr., "The Acquisition of Proprietary Technology by Developing Countries from Multinational Enterprises: A Review of Issues and Policies," United Nations Study Group on the Multinational Enterprise, 1973. MIt should be noted, however, that expenses incurred in the search for new technologies or production techniques are real costs. ^Wayne A. Yeoman, "Selection of Production Processes for the Manufacturing Subsidiaries of U.S. Based Multinational Corporations," D.B.A. thesis, Harvard Business School (Boston: 1968). 26Louis T. Wells, Jr., "Economic Man and Engineering Man: Choice in a Low-Wage Country," Public Policy Vol. 21 (1973). "Chalmers Goyert, "Ford in Asia: A Case Study," Council on Religion and International Affairs, Aspen, Colorado; Aspen, Colorado, April 27, 1974