Question

Describe in detail the reason why a firm that chooses to locate in one country over another country i.e. country specific characteristics

-Use real world examples that support your answer

Answer 1

The factors which favour a firms decision to invest in a country or not are related to the following factors :

1. Size of the Workforce : The availability of labour force influences a firms investment decision .

2.Economic growth : A high GDP growth favours investment as it signifies good future prospects for the economy.

3.Diversity : A diversity in workforce is an important cultural factor which leads to favourable advantages for the company .

4.Demographics

5.Financial Stability  : A financially stable market favours investment advantage as loans and investment's are readily available and credit is easily available.

A firm in order to set up its unit in any of the country relies on a strategic decision making process , this process weighs various factors and arrives at a desired solution which is then implemented by the firm . Let's take the example of Apple Inc. Apple Inc has outsourced most of its production to China and that's the reason you see the ""Made in China" tag on all of the Apple products we see. The reasoning behind it is an important tool that Business Firms utilise i.e Strategic Decision Making which is the process of charting long term goals and setting up short term decisions for the same.

1. Labour Requirements : China's huge labour force can support the huge demand for the Apple products , if instead the manufacturing is done in US , it wont be feasible for the company as the labour force requirements are high owing to high demands .

2. Supplier Network : Most of the raw materials are sourced from suppliers located in or nearby China and hence it is more feasible for the company to manufacture in China .A lot of these raw materials suppliers are located within short hand distance of the final assembly plant.

3. Best Fit ; China has a lot of people who are proficient in the skills desired by Apple Inc . and the labour force is flexible in meeting the change in demand of Apple products , and hence is the "Best Fit".

Another example can be taken of the major IT companies who have outsourced their operations to developing countries like India .

Most of the IT companies like Accenture and Cognizant have setup their offices in India , with Accenture having most of its workforce in India(37 % of its world workforce) and Cognizant having its 150000 employees in India( more than 40 Percent ) , the reason ranges from the skills available among the Indian workforce and the flexibility in learning new technologies and other reasons being the frugal workforce who are ready to work at a comparatively lower wages as compared to other developed countries , other reasons for these companies to invest in India are to attract Indian industrial giants in using their services .