International location
Some reasons for international location
- Historical - a sugar refining firm is likely to own plant in countries where sugar is grown, as well as a network to market and service the business worldwide
- Service - many products and services need local country support - e.g. Bosch washing machines.
- Access to markets - companies manufacturing in EU have access to the whole market. Nissan opened in Sunderland for this reason, and this also explains why they started making trucks in the USA, to access that market.
- Access to raw materials - extraction of natural resources in countries where they are found.
- Access to labour - usually this means cheap labour where regulations are less stringent than in the UK.
- Tax avoidance - by means of transfer pricing, multinationals organise their affairs to minimise their overall tax liability.
- Local incentives - regional grants and incentives are sometimes given to encourage overseas firms to set up locally and boost the economy.
Some problems of International trade
Risks and uncertainties associated with international trade include the following; for some companies, these risks are managed better by having international offices, factories and so on.
- Currency fluctuations
- Exchange controls
- Political instability and unrest
- Tariffs and other restrictive practices
- Language and cultural barriers - UK firms have an advantage that English is widely spoken around the world.
- Differences in ethical approaches
Costs of relocation or expansion
The costs and logistical difficulties are far more difficult in locating an industrial facility (high capital costs), whereas service industries - such as call centres - are cheaper to re-locate, which partly explains recent moves by UK financial institutions to India.
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