Question

Please CLEARLY indicate if the following statement is TRUE or FALSE: “The multinational enterprises created through Foreign Direct Investment use local suppliers and this is their advantage.” Please indicate clearly your answer (true/false). And then please kindly explain why. Do not provide general definitions of concepts and irrelevant information.

Answer 1

This statement is true. Companies invest in other countries to take advantage of the raw materials, labor, etc. in them. If a multinational enterprises invests (through FDI) in a country like China or India, it can take advantage of the relatively low cost labor in those countries. Simillarly, if a company that requires a lot of steel invests in a country that has it in abundance, it would be greatly beneficial for the company to invest as FDI.

Taking advantage of local supplies and raw materials results in significantly lower costs. This helps them to attain an edge over their competitors in terms of either lower prices or higher profits. Either way, they are better off as compared to their competitors. Therefore, the statement is absolutely true.