- A multinational company (MNC) is a business that has operations in more than one country
- This can include physical stores, manufacturing plants, factories, offices and service operations
- Globalisation means that many firms can now consider establishing production locations worldwide rather than just their home country
Diagram: The Influences on Foreign Location Decisions
Businesses may choose international locations based on factors such as trade barriers, levels of taxation and the attractiveness of accessing a new target market
- When choosing a location in another country, a business will consider several factors
Explanation of Factors Considered when Assessing a Country as a Business Location
Factor
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Explanation
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Trade barriers
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- A business located in a market within a trade bloc will be able to access many advantages, such as reduced protectionist measures
- E.g. Chinese companies are increasingly locating operations in countries with trade agreements with the EU and the US to circumvent restrictions on products made in those countries
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Financial incentives
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- Governments may offer incentives (e.g. grants, business loans and tax breaks) to locate in their country as MNCs bring in investment, foreign currency and job opportunities
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Access cheaper or skilled labour
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- Businesses may choose to locate production in a market where labour costs are lower or where significant numbers of workers have specialist skills
- Clothing brands frequently locate production facilities in lower-wage countries such as Bangladesh or Turkey, where skilled workers produce high-quality garments
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Lower taxation
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- Some countries tax businesses and their employees at very low rates
- Ireland's low rate of corporation tax has attracted large multinationals, including Google and Microsoft, to the country
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Alternative sources of raw materials
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- Some countries have cheaper raw materials or are sources of rare raw materials that are used in the production process
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Access to new markets
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- Many businesses choose to locate near to customers in another country to reduce transport and distribution costs
- This is particularly important when markets in the businesses home country have become saturated
- External factors such as changes in the law may have made the home market unviable so growth may only be possible by moving the business to an alternative location
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