Advantages and disadvantages of domestic production
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Published: Mon, 5 Dec 2016
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In the first step of this report to CEO OF CYBER security , I have written the strategic advantages and disadvantages of domestic manufacturing.
Secondly how effective is the location decision and how location impact on the manufacturing of such security system tools, as well as how people are coming towards use of technology to safe and relax business.
China has strong economy , Chinese authorities were willing to provide a loan of $100 million at 5%
Cyber Security to build a factory in the New Territories,
All these things are briefly explained in this report.
With the development of economic globalization, foreign direct investment (domestic production) is increasingly recognized as an important factor in economic development. Although domestic production began centuries ago, the fastest growth has occurred in recent years. This increase is due to several factors, in particular, are more receptive attitude of the public investment inflows in the process of privatization and the growing interdependence of the global economy.
Foreign direct investment (domestic production) occurs when a company invests directly in the production and / or market the product in another country (wlhill Charles, “International Business”). Domestic production takes two main forms, the first investment in green, which involves the creation of an entirely new operation in a foreign country. The second involves the acquisition or merger with an existing business in a foreign country. On the other hand, domestic production is divided into two types, horizontal domestic production (expansion of market share), which are investments in the industry even abroad, the company operates in the home, vertical and domestic production (resource investment research), which has two forms on the first back vertical national investment industry production abroad, providing information to internal production workflow. The second is located opposite the domestic vertical, in which the industry sells abroad the products of the internal processes of the production company.
Analysis of advantages and disadvantages of domestic production
In addition to domestic production, the company also succeeded in expanding foreign markets through exports and licensing.
Compared to the export licensing, the benefits of domestic production for businesses
1) . lower transportation costs. As for companies that agree to first horizontal national production are concerned, transport costs tend to be taken into account in the cost of production. When a company produces low cost and weight, such as margarine production of paper, etc., compared to exports, domestic production will be enough low-cost transport. But for products with a high ratio of cost and weight, transportation costs minor component of total landed cost. In this case, the advantage of domestic production for export is very limited.
2) . Prevention of traffic restrictions. For various reasons, many countries, it may be inappropriate in many ways for businesses to reach their potential market by exports alone. The basic shape of the barrier to export is the main barrier to imports. Many governments place tariffs on imported goods and to restrict imports by imposing quotas, because it makes exports unprofitable. On the other hand, it increases the profitability of domestic production. Thus, entering the country, prices up, but there is great potential for growth markets like China, many firms choose domestic production and / or licenses to expand their markets overseas .
3) . The advantage of tax benefits. In some developing countries, on the one hand, they must put tariffs on imported goods in order to protect their businesses, on the other hand, they also strive to create a promotional environment conducive to attracting production interior, which provides capital, technology transfer, institutional and managerial skills, as well as access to international markets. Thus, some countries offer tax incentives to attract investment. For those of multinational enterprises in countries with high tax rates, such as Great Britain and the United States to invest in the country there are tax benefits is a good way to cut taxes .
4) . Avoidance of doubt, the structure of expenditure by currency. When the company takes the export will be the primary means of developing the foreign market, one of the key risks it faces is the mismatch of cash inflows and cash outflows for the company. Expenditures and revenues are from different denominations, when the primary currency in the country increases, the income generated in the currency of the host country can not cover costs. In contrast, domestic production guarantees all costs and revenues in the same currency. Thus, reducing the risk of having a foreign currency.
5) . Do consumers have imposed restrictions. In some countries, it is not only a trade barrier imposed by the government, and the limits to consumers. Take South Korea, as Korean much prefer to buy domestic products, even if they are more expensive, mainly because of his nationalism. Another concern of the overseas production of goods is that service and spare parts will be difficult to obtain. In this situation, the holding of national production is a better choice than exports.
6) . The use of local raw materials and market players. As we already know, different countries have different tastes and requirements, the same products. Thus, multinational companies often have to change the product to local tastes and needs. This means that local raw materials and market participants may be used. In a situation, the export is complex and expensive. When companies think licensing is dangerous to protect its know-how, the best way to expand the market for foreign domestic manufacturing.
7) . Protection for businesses know how. Some companies have competitive advantages arising from their technology, marketing and management know-how of those who accept the licensing to expand the foreign market.
The main advantage of the license is something that should not have to bear the costs and risks, but he could earn a good profit from this know-how as royalty. In the interim, however, the use of licenses may take a few risks.
First, licensing may lead to the licensee learns that the Company’s technology and become competitive foreign potential. Apart from business planning to make a horizontal or vertical investment abroad may suffer from future competition for the licensee to understand the technology by the licensor and use it to compete directly against the licensor . In contrast, domestic production may prevent the company from skills used by other companies. Thus, firms in the domestic horizontal and vertical domestic production will be back, respectively, when the company predicted a potential sale of know-how.
, the licenses do not give a company a tight control on production, marketing and strategy in a foreign country. Generally, when the company agrees to license a foreign company control over the production, licensing and marketing strategy available in exchange for loyalty card. This can cause a gap between the donor and the strategy of the owner, and sometimes difficult to reconcile. If strict control over the foreign entity is desirable, the domestic production is preferred to the license.
Disadvantages of domestic production for companies:
1) . Domestic production is more expensive than exports and licensing. As indicated above, domestic production can take two forms: investment in green field of new facilities and acquiring or merging with existing local businesses. When things being equal, companies will be forced to spend large sums of money creation capabilities in a foreign country or the acquisition of foreign companies. Conversely, when the company exports, it should not bear the costs of domestic manufacture. When a company licenses know-how, he does not pay and can obtain revenue from the license.
2 ). Domestic production is more risky than exports and licensing. First, since multinational companies, the biggest factor that has attracted foreign investment is a stable political situation and with regard to the opening of a free market. Sometimes, however, this factor is very unpredictable. If the company has domestic production, it is usually confronted with more than the political risks of export licenses. In general, the risks can be divided into three categories (1) expropriation. the host government to claim ownership of the property companies. (2) The rate of irreversibility. (3) political violence. Secondly, although the company has a reasonable solution, because it takes a decision to invest in foreign markets, it would still other risks associated with doing business in another culture where “rules of the game can be very different. He is currently a huge cultural difference between East and West. The company has been in the party intends to invest in another direction, if it does not take into account cultural differences and understand that they can make costly mistakes, even very successful. Secondly, export licenses and in relative safety. Businesses do not need to understand and interpret the cultural and environmental differences. They can use their own agent to reduce the risks associated with foreign sales.
Factors for the production of international trade in the choice of strategy to expand the market overseas
As for companies engaged in the production of international trade, when they decide what form is to expand the foreign market, exports, licensing or national production, one must consider several factors, below.
First, the costs of transport should be an important factor to consider. As mentioned earlier, for low-cost products to influence the report, exports will be more profitable to ship these products. However, for products of high value to influence the report, transportation costs are a negligible role in the choice of exporting, licensing and domestic production. Focusing on industrial companies that mainly produce household items such as refrigerators, washing machines and vacuum cleaners, whose products are mostly low cost to ponder the relation of production, export is not a good option. Conversely, for manufacturing companies that produce software, personal computers and so on, have little impact on the relative attractiveness of exports, licensing and domestic production.
Secondly, the trade barrier is a key factor in determining whether exporting is a good option or not. When a host attached tariffs on food imports such as China sets a relatively high rate of imports of most native Auto-Protect automotive industry and for industrial enterprises, which intend to expand their products to market cars in China, export is expensive. If these companies do not want to be profitable, they should rise in food prices, which allows them to be less competitive with the cars than domestic firms. Therefore, if there are certain barriers to trade, export of the host country is not a reasonable option.
In general, if there are high transport costs and trade barriers, it is appropriate and reasonable for international manufacturers for export as a form of expansion of foreign markets and vice versa.
When you export is not optimal, as described above, companies may choose to license or national production. It is clear that the license is a very low risk and low prices. Yet, regardless of whether the license is ideal for manufacturing companies, the following factors, which can not be ignored.
Firstly, for companies that manufacture high technology products (personal computer, a chip), it is intolerable to license its technology to major potential foreign competitors. Although the license is a good way to earn a good income from the business know-how, a firm willing to provide potential foreign competitors who can compete with him in the future, with its advanced technologies.
Second, for companies who need to keep a tight control around the world, the authorization is not a good option. License does not generally provide for strict control of multinational manufacturers. If the production company in these two cases (1) global oligopoly, (2) intense pricing pressure from industry to license international market expansion, you may be faced with a dilemma: on the one hand, owners are always their own profits, taking into account first. On the other hand, in the center, in accordance with the benefit to all businesses need to disperse production of the world where the cost factors, the most favorable to minimize costs. If there is discrepancy between the multinational and its subsidiaries, it is not easy to reconcile, as there are few restrictions on the same strategy that the licensee must take the center.
Third, for multinational manufacturers as management and marketing expertise, such as Toyota, the licensing of foreign companies for manufacturing a specific product does not cause any competitive advantages for the holder. Because such expertise is difficult to organize and identify and can not be written in the license agreement, business management and marketing expertise will not be licensed.
According to the presentation above, we found that when the production company has the know-how may license and may be protected by the license agreement, in addition, the company does not require a tight control on operations foreign trade, and it will consider licensing the preferred form of domestic manufacturing industry.
For manufacturing companies with sufficient capital and training to develop the foreign market where it can not meet the above conditions for export licenses, it usually takes into account domestic production. On the other hand, if the company in an oligopoly, it will be forced to undertake the domestic production is not eliminated, if its main competitors have established a foreign subsidiary.
International marketing occurs when a business directs its products and services to consumers in a country other than where it is located. Although the overall marketing concept is the same everywhere in the world, the conditions under which the marketing plan is implemented may be substantially different from region to region. Common marketing problems, such as material, price, advertising and distribution, are likely to vary in countries where the company decides to sell its products or services. Business consultants say that in this way, the key to successful international marketing for any business, whether a transnational corporation or small business is the ability to adapt, manage and coordinate a smart plan in an unknown (and sometimes volatile) foreign language environment.
Companies choose to explore foreign markets for a number of compelling reasons. In some cases, companies are beginning to explore foreign markets in response to unsolicited orders from clients in these markets. Many others, meanwhile, seek to establish the business to cover overhead costs at home, to diversify their holdings of company changes the use of internal or international political and economic markets, or click new or growing. The main factor contributing to international efforts, marketing, of course, make money, as well as systems that include the world economy becomes increasingly interconnected, many companies have recognized that international capacity could possibly make difference between success and failure. “The world is becoming less and less,” said Jerome E. McCarthy and William D. Perrault Jr. in basic marketing. “Advances in communications and transportation, making it easier to reach international clients place. Market opportunities are often limited by national boundaries as they are on the line state in the United States. Around the world there are potential clients who have needs and money to spend. Ignore These customers do not make sense to ignore the potential customers in the same city.
Although companies choose the international market is not shared by general practitioners, they seem to have two specific characteristics in common. Firstly, they are products on foreign markets, generally proprietary, are regarded as having high profit potential in foreign markets. Second, management of companies marketing internationally must be ready to commit to these markets.
This involves much more than simply throwing money at the export business. Indeed, companies that are truly committed to creating an international presence must be fully prepared to learn about the country of his choice to go through the course of market research.
Small businesses do not recommend relying on the strategy of the GMS. Analysts say that while the major multinational companies can afford to blow a market products at low, most small businesses are not so strong. For small businesses, market research is an essential activity. After all, one false step on the international market could harm a young company, at least, raises fears for the future incursions. This may be inherently prejudicial, because, as SBA has warned: “Your business can not ignore international realities if you intend to maintain your market share and keep pace with their competitors.”
Cyber Security Corporation
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