Question

What are the advantages and disadvantages of limiting a firm’s activities to exporting compared to producing abroad?

Answer 1

Advantages:

1. When on business exports, it can take tax advantages in the home(if there are lower taxes at home)

2. The productions costs at home country can be lower than that of a foreign country where business has to establish itself first

3. Can easily get labour in home country rather then have to train and employ foreign workers

4. If the business production is patented, there is no risk of transferring technology to a foreign country or a franchisee there.

Disadvantages:

1. The exchange rate fluctuations can cause drastic changes in the company's profits

2. The import tariffs in the foreign country may increase cost of the product in that country

3. Cost of shipping and transporting could include transfer pricing in the product which may make it less attractive abroad.