A BRIEF THEORETICAL ANALYSIS OF FIRMS’ CAPITAL

Production process has utmost importance on a firm’s survival in a competitive market. For this purpose,  firms from developed countries choose to produce in different parts of the world to benefit from cheap labor  supply. On the contrary, firms in developing countries prefer to import capital goods from developed  countries to increase their chance to survive in a harsh competitive environment. But these capital goods are  designed and optimized specially for the firms in developed countries. Thus, it is unclear whether the  strategy of firms in developing countries is beneficial or not. In this paper, we clarify the results of firms’  strategies from both developed and developing countries. Theoretically, the strategy of firms that originated from developed countries is profitable. On the other hand, the strategy of firms in developing countries  harms their profit levels.