Question

After Year 3, the investors are interested in your company expanding internationally to possibly outsource labor or to reduce manufacturing costs. What countries would you expand to first, and why? What factors would you need to consider in making this decision?

What is the corporate tax rate in the countries you are considering expanding your business to, and how will that affect your decision to expand globally? (Use OECD Database or another resource to determine the corporate tax rate).

Answer 1

For reducing manufacturing costs and Outsourcing labour, India is the best country to expand to at first. This is because India has highly skilled manpower available at very cheap rates as compared to the developed Nations. The manufacturing costs are also lower due to lower cost of land and overheads especially in remote areas. Moreover India has developed in terms of infrastructure and technology.

Factors to be considered in making this decision are as follows

1. Political stability and the eagerness of the country to allow foreign investment as well as setup of outsourcing centres.

2. Level of infrastructural development such as availability of continuous electricity Technology And Labour.

3 cost of the factors of production required for the manufacturing process.

4. Tax benefits and tax rates in the country under consideration.

The corporate tax rates in India is 25%. The Corporate tax rate plays an important role in the decision to expand since an additional tax would be paid in this particular country where the operations are going to be expanded. Moreover rules of double taxation are to be taken into account before taking the final decision.