Conditions under which companies may find more advantages to locate production in foreign countries than export to them are:
A. when production abroad is costlier than at home.
B. when transportation costs are too high for moving goods or services internationally.
C. when companies lack domestic capacity.
D. when governments inhibit the import of foreign products.
E. when products and services need not be altered substantially to gain sufficient consumer demand abroad.
Choose the correct answer from the options given below.
(1) A, B and D
(2) B, C and D
(3) C, D and E
(4) E, A and B
Answer (2)
This question pertains to scenarios under which companies may find it more beneficial to locate their production in foreign countries rather than exporting their goods or services to these countries. Let's consider each of the provided options:
When transportation costs are too high for moving goods or services internationally (B):
High transportation costs can significantly increase the overall expense of exporting goods. If it is cheaper to produce goods locally in a foreign market than to transport them from a domestic location, a company may opt to set up production abroad. This not only reduces costs but also allows the company to be more competitive in pricing.
When companies lack domestic capacity (C):
If a company does not have enough capacity in its home country to meet both domestic and international demand, it might choose to expand production facilities abroad. By producing in foreign countries, companies can better meet demand without overburdening their domestic resources.
When government policies inhibit the import of foreign products (D):
Tariffs, quotas, and other trade barriers imposed by foreign governments can make exporting goods less feasible. In such scenarios, establishing production sites in those countries can help companies bypass these trade restrictions, allowing them to sell their products more freely in the local market.
Considering these factors, the best choice that captures the conditions under which companies may prefer to locate production in foreign countries over exporting is (2) B, C, and D.
By locating production in foreign countries under these conditions, companies can reduce costs, increase capacity, and circumvent trade barriers, thereby enhancing their competitiveness and market presence in foreign markets. This strategic decision is often part of a broader approach to international expansion and market penetration.
The best conditions for companies to locate production in foreign countries instead of exporting include high transportation costs, lack of domestic capacity, and government restrictions on imports. This strategic choice allows companies to reduce costs and improve their competitiveness in foreign markets. Therefore, the correct multiple-choice option is (2) B, C, and D.
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