Kenneth R. Szulczyk
allows free markets and allows the free movement of capital, labor, and technology. Thus, a
government relaxes its control over its market. Second, a government allows strategic
management. Thus, companies can develop new products and services, and compete with other
companies. Furthermore, a multinational enterprise could tailor its goods and services to
accommodate different cultures and tastes. Finally, multinational corporations need access to
capital because international activities require financing. Hence, a country must allow the free
movement of money, and corporations are free to issue more stock, bonds, or receive bank loans
without government interference. Consequently, a firm has twelve reasons to relocate
production to another country, rather than to export.
Reason 1: A foreign government offers subsidies and tax breaks to a company. Some
countries such as Dubai (United Arab Emirates) and China have free-trade zones, where
companies pay little or no taxes, experience few regulations, and can freely export their products
and services to the international markets. Consequently, some governments offer incentives to
companies because they want to create jobs and reduce unemployment and poverty rates.
Reason 2: A company gains access to technology from another country. For example, India
has talented computer programmers and engineers, who work for relatively lower wages than
their counterparts in the United States and Europe. Consequently, a company could relocate to
India to tap into their skilled workforce.
Reason 3 : An enterprise that moves its factories to a foreign country automatically avoids
trade restrictions, like tariffs and import quotas. Government does not apply trade restrictions to
products and services produced within a country.
Reason 4: A company relocates its manufacturing facilities to reduce transportation costs.
For example, sugarcane is bulky and expensive to transport. Consequently, sugar producers
locate the sugar mills close to the sugarcane fields. Then they extract and purify the sugar and
ship it to distant markets.
Reason 5: A business gains access to new markets and more consumers. For instance, the
Coca-Cola Corporation produces and sells its carbonated soda products in most countries around
the world, boosting its consumers.
Reason 6: A company could diversify its business and manufacturing by expanding into
foreign markets. Some foreign markets grow quickly, while other markets experience weak
growth. Consequently, the business could earn a return on its investments.
Reason 7: A company needs an important raw material for production. For example,
battery manufacturers need lithium to produce laptop batteries. They started mining and refining
facilities in Bolivia because Bolivia possesses half the world’s reserves for lithium.
Reason 8: Businesses and companies reduce their production costs. Consequently, many
U.S. manufacturing companies moved to China and Mexico to take advantage of the lower
wages and comparable productivity.
Reason 9: A company outsources its production to another company, usually located
outside the country. For example, Microsoft outsourced its production of X-box consoles to
Flextronics, a Singaporean company. Then Flextronics outsourced the production to a Chinese
manufacturing plant. Consequently, outsourcing can lower a company’s cost, granting it a cost
advantage over its competitors.