Shifts in exchange rates can certainly have an affect on decisions of an MNE, including where to produce as well as its profits. But, I think I think that there is also a lot to be said about risk tolerance of the MNE when it comes to currency volatility. Typically, the focus regarding exchange rate volatility has been on risk aversion, but research suggests that exchange rate volatility creates opportunity for MNE's to move production to lower cost plants ( Sung, & Lapan, 2000). "High volatility increases the option value of FDI, and may stimulate new investments ( Sung, & Lapan, 2000)." In addition, by increasing the value of the operational options, gives the MNE strategic advantage that may force the local firm out of the market.
It is also integral to mention that customer's preferences and purchase behaviors are changing as well. Price is not necessarily the driver of demand. Research suggests that demand is positively related to quantities demanded by other consumers (Becker, 1991) and fast forward to 2013, with social media on the rise, customer's perceptions are being swayed even easier. Furthermore, value is a key player in shifting customers. " Value co-creation concerns the active participation of the customer in the creation of a unique offering. In both the academic and management literature co-creation is considered as an important source of competitive advantage (Merken & Streukens, 2012 )".
Hmmm....I see culture and perception coming into play again...What do you think?
References:
Becker, G. S. (1991). A note on restaurant pricing and other examples of social influences on price. Journal of Political Economy, 1109-1116.
Merken, A., & Streukens, S. (2012). Understanding and shaping customer co-creation value perceptions.
Sung, H., & Lapan, H. E. (2000). Strategic Foreign Direct Investment and Exchange‐Rate Uncertainty. International Economic Review, 41(2), 411-423.
