Question

Attempt this question only if you have profound knowledge of international economics and if you have...

Attempt this question only if you have profound knowledge of international economics and if you have not answered a similar question recently.
Is it TRUE or FALSE that the multinational companies use local suppliers when they are formed through Foreign Direct Investment?
If it is TRUE, why?
If it is FALSE, why?
Describe the possible role of local suppliers in the correct scenario.
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Homework Answers

Answer #1

The multinational companies use local suppliers when they are formed through Foreign Direct Investment as the company invests directly in host country plants so as to stake an ownership claim, in that way evading transaction costs besides having the benefits described below.

Role of local suppliers:

They are more reactive than those suppliers who are farther away. They offer control of MNCs over them as MNC’s are close to the elements of supply chain, while reducing supply Chain Costs. Local suppliers help earn more revenue due to tight and fast-paced supply chain and thus making available new customers. Also localizing supply chain reduces shipping and storage, thus cut emissions and energy usage.

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