Free Accounting Dissertations - In The Eu, For Example, Companies In Smaller Economies Need To Look Outside
In the EU, for example, companies in smaller economies need to look outside of their home borders. This helps to explain why 60 per cent of Royal Dutch/Shell’s assets and 75 per cent (see appendix Table 1) of BP’s assets are in foreign markets, including the markets of other EU members. In addition, although Switzerland is not in the EU, nearly 90 per cent of Nestlé’s assets are outside Switzerland. The same is true of revenues. Over 50 per cent of Royal Dutch/Shell’s sales originate outside its home markets (the Netherlands and the UK) and nearly 70 per cent of BP’s sales are from outside the UK. In addition, global markets often offer more lucrative opportunities than do domestic markets. This helps to explain why Coca Cola and IBM now earn more sales revenue and profits overseas than they do in the US, and why PepsiCo has become Mexico’s largest consumer products company.
Enter rapidly growing markets
Some international markets are growing much faster than others, and FDI provides MNC’s with the chance to take advantage of these opportunities. A good example is China. Over the past few years the Chinese economy has grown at an annual rate of around 7 8 per cent. This is quite good given that its GDP is in the range of $1 trillion. The data also shows that if the country continues to move toward a market-driven economy, MNC’s are likely to find a huge demand for goods and services that cannot be satisfied by local firms alone. Simply put, China is a market where most multinationals want to have a presence despite the fact that there are many problems in doing business there and virtually no MNC has yet been able to extract an adequate return on its investment.
Reduce costs
A MNC can sometimes achieve substantial lower costs by going abroad than by producing at home, for example, Japan does not have enough land for most manufacturing companies to embark on setting up corporations, hence they have had to invest in countries like, China and Scotland . If labour expenses are high and represent a significant portion of overall costs, a MNC may be well advised to look to other geographic areas where the goods can be produced at a much lower labour price. Surprisingly perhaps, in recent years some Canadian manufacturers have been moving operations across the border to take advantage of lower US labour unit costs. A second important cost factor is materials. If materials are in short supply or must be conveyed a long distance, it may be less expensive to move production close to the source of supply than to import the materials. A third critical cost factor is energy. If the domestic cost of energy for making the product is high, the company may be forced to set up operations overseas near sources of cheaper energy. A fourth important factor is transportation costs. In the recent past Chinese textile firms had gained a major share of the US market.
Dissertations - Free Accounting Dissertations
