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Thursday, 27 December 2012

Business Location in foreign countries- Advantages

Business Location in foreign countries- Advantages

Location Advantage in foreign countries
When making a location decision of a business unit, actors considers location advantage of a location point compared to others. This is done by looking at the factor differentials over space. Multinational firms chooses to locate a production unit in a foreign countries by considering the differential advantage available, most important is the adaptability of new technologies developed at home to the demands in the foreign markets (Pearce & Singh, (1991). The following are the factors that enable a firm produce more efficiently in a foreign country than at home.

Business’s Higher Demand in foreign country

The existence of demanding customers in the foreign country’s local business environment enhances continuous flow of manufactured product from the producer to the market where there is demand. The accessibility of the local market where the demand for the product is in that country ensures the goods reach their destination at the projected time to avoid delays which may bring customer dissatisfaction with the services and wastage.

Deposit of factor inputs

Availability and supply of raw materials and human resources in the local environment at fair cost enables a production unit to produce more efficiently in that foreign country than when a similar production unit was located in the home country. Availability of labour force in a local market at comparable cheaper wages than in the home country ensures round the clock process of production. Therefore, where there is imperative cost advantage in a foreign country in the provision of raw materials and other factor inputs, a firm located abroad has production location advantage rather than when located at home country.

Business Location Regulatory conditions

In a country where the regulatory condition imposed by the law of that country for the interest of the  public are reasonable and proportionate compared to other countries, including the a firm’s home country, then that country has location advantage as regard to efficient in production.

Presence of expertise in the foreign country

The presence of highly trained personnel, skilled labour and professionals from various disciplines gives a country a location advantage over other countries. The hired experts aid in research and coming up with new ways of production and distribution as per the demand in their local market, therefore giving the foreign firm an advantage since the experts have clear knowledge of their local business environment.

Government Incentives

Most government in less developed countries extends to foreign firms a wide range of incentives in order to encourage them to establish their manufacturing industries, in their country. This enables these firms to reduce the cost of setting up structures, developing new products and coming up with new processes, and at the same time help the host country to industrialize.
To promote industrialisation, governments extend a wide range of specific or general incentives to multinational firms to encourage them to set up production units in their countries (OECD, 1988)These foreign government incentives enables a firm to produce more efficiently when located abroad than when located at home country.

Business Location-Competition

Highly competitive foreign business environment gives the firm located abroad to learn from their rivals. At the same time firms in such a market have to come up with new technology and modern methods of production that are more efficient in order to survive in the market. In a highly competitive market firms can innovate more rapidly and at a higher level (Porter & Sölvell, 1998).In such a competitive environment firms have an opportunity to adopt to more efficient production habits than when located in their less competitive business environment in their home country.

Definition of Franchising, Licensing and Foreign direct investment

Franchise is a non-negotiable contract where a business entity, the franchisee, uses the good business model of another business entity, the franchisor. It is a short term business agreement typically lasting between five and thirty years, broken down into renewable shorter periods. A franchise involves renting or leasing a business investment temporary. It has several legal regulatory that ought to adhere to.
In terms of ownership and control, the franchisor owns the trademark, major securities and has full control of the business concept. Though each party has several interests to protect, the franchisee is subjected into strict rules of the franchisor such as giving royalties that are protected by the law.
The franchisee has very little control over his business but they must be seen as an independent merchant from the franchisor and must be given territorial rights and get protection from  any trademark infringement by a third party from the franchisor.
The franchisee carries the highest risk since the non-negotiable contract favours the franchisor while no guarantee for the franchisee business.

Choosing Business Location: Licensing
This is a short time business relationship between the licensee and the licensing company. This kind of an agreement has very few regulatory requirements and the licensee does not use the trademark of the licensing company but may be required to pay some royalties.  The licensee has the full control over the business they are carrying out though the market and the license belongs to the licensor. The licensee bears all the risks of the business and they do not get territorial right from the licensor.
Foreign direct investment
This is where a country directly participates in long term investment in foreign countries. The country participates in such an investment equitably in terms of control, ownership and sharing risk together with the host country. The two countries take part in technological transfer, expertise and the joint-venture.
Country’s most beneficial investment
The government of any country is mandated to ensure public funds are located in projects and programs that will bring the highest returns to the general public.
Viable investments project
The government should ensure all investments projects it engages in are free from immature termination leading to mass loss of public funds. Therefore the government should ensure the investments bring the highest social returns. The government should be able to carry a feasibility study in order to determine the viability of a project before it embarks on the implementation of the same.
In line with the strategic plan
The government determines to engage in investment that will create economic opportunities in the future (Combet, 2011). These investments should be in line with the development plan of the government. They should be geared towards poverty eradication, combating unemployment, reduction of illiteracy level, enhancing med-care among others.
Investment for Common benefit
An investment that brings benefits to the largest number of citizens is the most beneficial to a country. A program undertaken by the government should not be for individual benefits in the expense of the mass benefits.

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