In the Least-cost Theory of Alfred Weber, please explain in the agglomeration economy, why at the

first stage (the economics of scale) the agglomeration costs are lower and support well to economy, but
later in the second stage (the dis-economies of scale) the agglomeration costs increase and impacts the
economy?
Agglomeration economy refers to the localized economy in which a large number of companies,
services, and industries exist near one another together to benefit from either a reduction of productive
and transaction costs or an increase in productivity. Agglomeration benefits regions and residents with
better job matching, higher wages and greater opportunities for social and civic engagement; meanwhile,
companies and factories are enabled to develop specific strategies supporting the flow in and out through
the economic activity.
At the first stage (the economies of scale), an agglomeration economy would support the economy as it
helps to increase returns to scale which contributes to the growth of the cities or areas. Besides, as being
located relatively close to each other, transportation costs from firm to firm or from factory to company
can be minimized. Due to the concentration of firms in a small area, that area may experience a
considerable growth; meanwhile, local people can create many great local markets. Besides, a cluster of
firms in the same or similar industries facilitates the movement of workers between firms, resulting in more
job opportunities and lower search and human resource costs for the firms. Lastly, as many companies
are majored in the same field, they are enabled to create and develop innovating ideas continuously and
exchange techniques and skills to expand and develop together.
However, in the second stage (the dis-economies of scale), the agglomeration economy no longer
supports the economy. In contrast, agglomeration costs increase significantly and impact both firms and
economy. In the long run, a large population of firms in a relatively small area would result in the
shortage of labour and competitive development among firms. Also, the significant growth to a specific
area may have negative impact on the surrounding environment and thus the economy faces strong
environmental pressures. Besides, an overwhelming growth and exploitation of specific fields in a long
run may lead to lack of reserve areas for other developing fields such as culture or accommodation.
Moreover, since many businesses join the same field, blockage or bottlenecks to many goods is more
likely to incur. Lastly, agglomeration in the second stage also creates economic inequality among areas,
cities or urban areas and rural areas.
In short, agglomeration may support the economy in the first stage of economies and help the area to
grow significantly, however, in the long term, when costs of agglomeration exceed the benefits, it can
impact the economy negatively.

Please explain why the economic organizations (foreign companies/global firms) invest their economic
activities in one country; they cause many changes of technology, politics, culture and society,
demography, and environment in different scales of global, regional, and local? Give examples.
Invest in one specific country -> Local scale
Invest in many countries (Vietnam, ThaiLand, Laos, Singapore) -> Regional scale
Invest worldwide (CocaCola) -> Global
 Organizational change is not optional to keep pace with business. All organizations, at one time or
another, face substantive modifications to some aspect of their business.
  Foreign investment in the sector has brought technology transfer and new production models that
have improved added value and competitiveness of Vietnamese products. It has also helped to create
more jobs and improve infrastructure in rural areas, and enabled the sector to directly connect
to global value chains.

 But foreign investors have mainly invested in some localities and sub-sectors mostly because
of difficulties in accessing land to develop a stable source of materials and limited logistics services
and infrastructure

 The Government has policies to attract foreign investors, including corporate tax and land rental
incentives, but the policies should clearly state the incentive rates

Technological (Samsung invest in Vietnam -> bring new technology)

 We live in a time of stunning technological wizardry, but unfortunately, not all of us benefit from it. Many
have already been left behind and risk falling even further behind due to the political, economic and social
consequences of rapidly expanding inequality. Tremendous technological leaps are being made, but the
economic and social benefits remain geographically concentrated, primarily in developed countries. Too
often the least developed countries (LDCs) remain far behind if not excluded entirely. Many have little
choice beyond the use of obsolete technologies, such as those used in the garment or agricultural sectors.
 The gap in scientific and technological capabilities is widest in areas of direct relevance to the
objectives of sustainable development: new energy sources, biotechnology, genetic engineering, new
materials and substitutes, non-polluting and low-waste technologies. 
Political
 firms must abide by the local rules and regulations of the countries in which they operate. 
 Until recently, governments were able to directly enforce the rules and regulations based on their
political and legal philosophies. The Internet has started to change this, as sellers and buyers have
easier access to each other. Nevertheless, countries still have the ability to regulate or strong-arm
companies into abiding by their rules and regulations. As a result, global businesses monitor and
evaluate the political and legal climate in countries in which they currently operate or hope to
operate in the future.
 In order for the MNC to invest abroad, it must have a sustainable competitive advantage; such an
advantage enables it to compete effectively at home and internationally. This competitive advantage
must be firm-specific and profitable in order to generate income to compensate the company for the
potential disadvantages of operating abroad. Such disadvantages include foreign exchange risk,
political risk, and other unanticipated costs. MNCs are investing abroad because they possess an
enormous competitive advantage and can exploit the foreign factors of production and the foreign
markets with a variety of motives: economies of scale, foreign resources, nonexisting constraints,
managerial and marketing expertise, research and development, superior technology, lower cost of
capital, product differentiation, price discrimination, and others.
 Political risk takes various forms, ranging from changes in tax regulations, exchange controls,
stipulations of local production, expropriation, discrimination against foreign businesses, restrictions
 on assets, forcing local investment for their profits, restrictions on borrowing, restrictions on
deposits (lately, we have experienced levy of taxes on deposits, too), to restrictions on their general
operations.
Socio-Cutural (traditional -> modern: aodai -> fashionable outfits, Western culture)
 Society and culture have an impact on every aspect of the overseas business of multinational
companies. Although society and culture are not directly included in business operations, they
indirectly appear as key elements in shaping how the business is managed, from what goods are
produced, and how and through what means they will be sold, to the establishment of managerial
and operational patterns and the determination of the success or failure of foreign subsidiaries.
Consequently, multinational companies should be aware of predominant attitudes, values, and
beliefs in each host country where decided to expand their business activities.
 Тhe main elements of culture that may have an impact on the operation of multinational companies
are: Attitude and beliefs – In every host country, there are norms of behavior based on attitudes and
beliefs that constitute a part of its culture. The attitudes and beliefs vary from country to country.
Multinational companies face a different set of attitudes and beliefs of a culture in each foreign
country separately, and it influences all aspects of human behavior, providing organization and
directions to a society and its individuals. Attitude toward time – It refers to people’s behavior
about punctuality, responses to business communication, responses to deadlines and the amount of
time that they spent waiting for an appointment. For instance, Americans are known to be punctual
and the phrase time is money exactly explains their attitude towards time. In contrast, people from
other countries may show more flexibility towards time. Attitude toward work and leisure – There
are differences in attitude towards work and leisure among various countries. In some countries,
people work much more hours than is necessary to satisfy their basic needs of living. This attitude is
indicative of their views towards wealth and material gains. Attitude toward achievement –
Cultural diversity in the general attitudes towards work is related to people's achievement
motivation. Attitude toward job – The importance of certain profession in country significantly
determinate a number and quality of people who want and seek to join that profession.
Consequently, if the business is considered as a prestigious occupation in some country,
multinational companies will have at their disposal broader pool of local professionals.
 The influence of culture on the operation of multinational companies is real and widespread.
Multinational companies are affected by more than one culture at a time. Through their subsidiaries
located in various countries, they are exposed to different national cultures. Consequently, a certain
multinational company builds its corporate culture based on the cultural differences that exist among
the countries where it operates. Therefore, it is very important for multinational companies to adapt
their production, marketing, and sales activities depending on the culture of the given country.
Culture in particular country directly, or indirectly, reflect on the achieved performance of
multinational companies.
 The social and government attitudes towards foreign business, especially towards foreign companies
and their products, are one of the social factors that may have a significant impact on the
performance of multinational companies. The social and governments attitudes of the particular
country towards foreign companies and their products can range from complete acceptance and trust
to complete distrust and antagonism. Analogously, if the society of a given country is friendly
towards foreign business, multinational companies will certainly benefit from a supportive local
environment. On another hand, if social attitudes of a given country are antagonistic, the
 multinational companies may face difficulties, such as boycotts of their products. The antagonistic
social attitude that companies may face in some foreign countries is often the result of their
government's position towards some political issues

Demographic:

 More people living in big cities, mostly young labor -> structure change (in labor age vs out labor
age)

 Women labor vs Men labor

 Family structure (past: 3-generation -> now: one-to-two generation)

 Income is one demographic variable that can affect businesses. A company's products usually
appeal to certain income groups. For example, premium products such as high-end woman's
clothing usually appeal to women with higher incomes. Conversely, people with comparatively
lower incomes are more sensitive to price and, therefore, may prefer purchasing discount products.
People with lower incomes have less disposable income. Value is a major determinant in the
products they purchase. Hence, a company may best reach lower-income people through discount
retailers and wholesalers and attract higher-income buyers in specialty retail shops.

 People's buying preferences also vary by geographic region, which is another type of
demographic. Those who meet buyers' needs and requirements in certain geographic regions can
earn higher sales and profits. For example, people often prefer certain food and drink flavors in
certain markets. Companies that sell the flavors consumers desire in various areas are more likely
to profit. Those who do not offer these flavors may risk losing customers to other competitors.

 Buyers' education levels also impact the types of purchases they make. Higher levels of education
are correlated with higher household incomes, and this higher income drives many educated
buyers' purchasing choices. One example is higher earning households' greater likelihood to buy
more nutritionally dense groceries. Another is educated parents' greater likelihood to invest in
their children's educations through tutoring, standardized test prep and financial planning for
college.