U8: Reasons for Firms to trade and invest overseas (pg 60-61half) Flashcards Preview

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Flashcards in U8: Reasons for Firms to trade and invest overseas (pg 60-61half) Deck (5):
1

Reasons for Firms to trade and invest overseas (pg 60)

1) Market Factor
2) Geographical Factor
3) Resource Factor
4) Governmental/Political Factor

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Reasons for Firms to trade and invest overseas (pg 60)
1) Market Factor

The market factors include:
> Falling domestic demand due to falling birth rate, change in consumer taste and falling income level,
> Increasing competition as more rival firms are able to produce similar or alternative goods and services,
> Novelty of firm’s products in an overseas market and therefore able to command higher prices.

3

Reasons for Firms to trade and invest overseas (pg 60)
2) Geographical Factor

A firm may set up manufacturing facilities in another country as a result of that country’s climate, water resources and/or terrain. For example, a chemical processing company may open another plant in a foreign country, which has abundant clean water and almost non-existent natural disaster (such as earthquakes).

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Reasons for Firms to trade and invest overseas (pg 60)
3) Resource Factor
Home manufacturers may wish to import goods (raw materials, finished goods etc) from overseas suppliers for the following reasons:
3 REASONS

For the same reasons, a manufacturing firm may also open another plant in a foreign country to have ready access to cheaper but quality recourses.

> Broaden their supply base for
>> Increasing variety,
>> Diversifying supply courses (reduce risks of being over-dependent on domestic suppliers);
> Foreign materials/finished goods may be cheaper,
> Unique products or their specific quality levels are not available domestically.

5

Reasons for Firms to trade and invest overseas (pg 60)
4) Governmental/Political Factor

Unstable domestic political situations may force local firms to move their operations to other countries, which are relatively more stable.

Home governments may give attractive incentives for local firms to venture overseas, such as tax-breaks and subsidies for exports; to meet national objectives, such as generating greater national income; and promote political ties with trading and investment partner countries.