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Is it better for a country to encourage international trade? Why do you say so?
Yes, Is it better for a country to encourage international trade. Three major operating objectives the
reasons for engaging in international business :
Pursuing international sales usually increases the potential market and potential profits.

Producers and distributors seek out products, services, resources and components from foreign
countries. Foreign sources may give companies lower costs. Sometimes firms gain competitive
advantage by improving new differentiating or better products quality from those of competitors,
in both cases they ‘re potentially increasing market share and profits. Lastly, additional operating
knowledge such as many companies establish foreign R&D facilities to tap additional scientific
resources. They also learn while operating abroad and they acquire product knowledge for entering
new markets at home.

International operations may reduce operating risk by operating in countries with different business
cycles can smoothing sales and profits. Other than that, companies often go international for
defensive reasons. Perhaps they want to counter competitors’ advantages in foreign markets or
preventing competitors from gaining advantages.

Choose 3 countries that are economically diverse. What are the impacts of foreign direct investment
upon those countries?

FDI occurs when a firm invests directly in facilities to produce and/or to market a product in a
Foreign country.
o FDI takes on 2 main forms:
I. Greenfield investment
II. Acquisition/Merger

o FDI occurs when:
I. The parent company obtains sufficient common stock in a foreign company to
assume voting control
II. The parent company acquires or constructs new plants and equipment overseas.
III. The parent company shifts funds abroad to finance an expansion of its foreign
IV. Earnings of the parent company’s foreign subsidiary are reinvested in plant

Motives for Foreign Direct Investment
o Demand factors
• tap into foreign markets
• expand demand beyond domestic
• preemptive measures to prevent foreign competition
o Cost factors
• Access to raw material
• Lower labor
• Transportation cost

o cost factors
• transportation costs
• especially when representing high percentage of total costs
• When the cost of transporting raw material is significantly higher than the
cost of shipping its finished product to the markets-production facilities
closer to its raw material sources
• When the cost of transporting raw finished products is significantly higher
than the raw maerial-production facilities closer to its market
• When transportation cost are minor,MNEs tend to locate where the
availability of cost of labor and other inputs provide them the lowest
manufacturing cost.