Finance
Discuss some of the motivations firms have for setting up production facilities in other countries. Will the effect on the host country differ depending upon the motivation? Explain. Will the effect on the source country differ depending upon the motivation? Explain. What relationship might trade barriers (or the lack of trade barriers) have in determining a company's primary motivation for producing abroad?
The reasons for the foreign investment are high profit returns, and the rate of return is dependent upon the capital invested, the tax reductions and employees' fund. The foreign investment or production company is highly welcomed by the government because the company is expected to bring in foreign exchange. THz enhances the purchasing power of the country in international currency; thereby the nation has to rely minimum on loans and international borrowing.
The major motivation that the international investor has towards foreign investment is that cheap labor that the company has to recruit. Considering the example of China and India, both the countries are admired and preferred by the international investors and production units for the simple reason that the labor cost is minimum. The other factors include the capital cost, property cost and maintenance. In case of China and India, for international investors the land prices and initial investment cost is under expected and affordable range, as compare to the investment being carried out in United States and Europe.
The foreign companies are always in a better position to dictate their terms, the companies are offered minimum tax cuts, and are always appreciated and supported for their launches. However this also depends upon the economical conditions of the country, where the investment is being poured in. The host country is always appreciable and supportive of the investment company, the company is offered land at subsidized rates, and utility costs are also reduced, the company is offered certain incentives and housing schemes for its employees. Secondly through that national forum, the company achieves acknowledgement at international scale.
It is obvious that the host companies are likely to suffer because of the inflow of foreign investment in production and industrialization. The host companies are found to be focused on the old technological setup, therefore their brand is expected to face certain competition from the rival foreign company. These circumstances persuade the host company to plan of investing in other country, i.e. comparatively poorer.
It is primarily important that the country develops trade agreement with other nations, for the simple reason that foreign investor finds is feasible to invest into that country. Secondary the trade agreements are much like an acknowledgement from both the countries and their likeliness to work and invest together i.e. joint ventures.
Explain the major causes of the foreign debt crisis faced by many developing countries. How has it been managed up to this point? Are there better solutions that you might suggest for resolving the situation?
The economical conditions of the country are much influenced by the proportion of exports and imports. If the imports keeping on surging, the country is likely to borrow money so that it can overcome its economic shortcomings. The government plans that surging import, is likely to increase the local production, and will contribute significantly towards the foreign reserves of the country. The country therefore borrows debts and loans from international monetary agencies or other lending institutes. However the expectations always go wrong, for the simple reason that the internal growth is dependent upon the political, social conditions that persists in the country. Developing countries are often satisfied with the surging imports, for the simple reason that the imports are focusing more on industrial machineries; thereby the government expects that production from those assembled units will be manifold to cater for the current economic unbalance.
The local investor intends to invest accordingly, but because the political and social situations of developing countries are always unpredictable therefore the local investor finds it difficult to invest although the machineries have been imported....
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