Foreign Relocation and Environmental Factors 1

FOREIGN RELOCATION AND ENVIRONMENTAL FACTORS

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Professor

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July 24, 2020

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Introduction

The world is has come a long way ever since the first industrial revolution. The nomadic man

of the prehistoric era would be appalled by the connectivity of the world. The post era and the

Bretton Woods institution laid a foundation upon which the idea of “globalization was built.

The wave of globalization swept across the globe and influenced every part of human life:

social and economical. Industralization , riding on the back of capitalism, has been

mushrooming exponentially, especially in the last four decades. With the unprecedented rise

in the propulsion in the would and with the increase in the demands of the consumers, local

industries aren’t enough to fulfill the demands. There are numerous reasons which make

setting up local industries, especially in the western world, unattractive. The reasons range

from a shortage of skilled labor to the opportunity to tap a new market to gain new profit.

Hence, the ever-connected world created the opportunity for the industry to relocate

themselves outside their country of origin. Since then, Multinational companies (MNC’s)

have been driving force behind the global economies, and relocation has proven to beneficial

for them. This essay will focus on the potential attractions for the industry and corporations to

relocate abroad. It would shed light on factors influencing such trends along with potential

disadvantages associates with such a trend.

External Factors involved in Foreign Relocation

Firstly, major companies like Apple and Samsung have found their production homes

in China owing to the availability of fo cheap labor. As mentioned by (Andreff, 2009), most

of the production operations are being outsourced because the labor rates in the first would

counties are high. Countries like China and India have become an investment hub for major

corporations. The relocation allows the corporation to reduce its production cost and increase

their profits. Athough the relocation of the corporations is seen in the positive light but the
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misuse of labor and harsh working environment has become a norm in these countries.

(Kortelainen, 2008). Hence the corporation is more focused on relocating its production

facilities to the developing counties where cheaper labor is available to get maximum profit.

Secondly, corporations want to transcend borders because the supply of the products

is too much for domestic customers. Industries like Coke, Apple focus on making products

that aren’t restricted in one country and region. Thy ant to fain maximum market. (Belderbos

and Zou, 2006) Foreign relocation allows them to tap into the new markets. As the

mechanization of the products is increasing, the per-unit cost of the items is decreasing. So

the competition to consolidate their ground in a foreign land is beneficial for the developing

world too. Hence the foreign relocation is mutually beneficial: customers are getting high-

quality products at a cheaper rate, while the companies are finding new markets.

Thirdly, the relocation of the companies results in technology transfer. The expansion

of this technology results in an efficient working environment. The knowledge gained can be

utilized by the country to excel in research and development. China is known around the

globe to learn from the technologies being transferred in their country. China is not only

learning from such industries but also it is getting better in creating its technology.

Fourthly, the foreign relocation of the industries improves the relationship between

the countries. As the benefits of the investments are tied with the success of the industry.

Many major US corporations are heavily invested in the stability of China. Any tussle

between the US and China in the name fo the trade war would not only hurt China but also

the US economy. (Busch, 2001) SO the geographical expansion of the industries helps to ease

the tensions in the relationship between the two counties.

However, there are numerous threats and potential dangers that loom around the

concept of the foreign relocation of the industries.

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Firstly, the relocation would cause a loss in the job opportunities in the parent country

of the cor[oration. Numerous major US corporations prefer to set up their operations abroad.

This results in lesser job opportunities in the US. This issue has caused serious friction

recently and the turmoil it created lead to a significant change in the political landscape in the

US politics four years ago. So, the potential threat of loss of jobs in the parent country can

cause serious damage to the trend of foreign relocation fo the industries.

Moreover, with the concept of foreign relocation, there is a threat of instability. As the

companies in foreign countries need to adhere to their laws, it can lead to a drastic change in

the corporate culture of the company which might result in damaging the reputation of the

corporation. Furthermore, change in political realities abroad can also result in influencing

the operations of the companies badly. An unwanted change in government can jeopardize

the plans of the corporation. For example, BREXIT has seriously affected the operations of

the European MNC’s working in the UK. (Meardi et al., 2009) Now they are considering

leaving the UK which would not only harm the UK's economy but also affect the stability in

the operations of the corporations.

Apart from instability, foreign relocation can also result in lower production quality of

the products. Companies relocate in search of cheap labor when they move abroad, but

sometimes it leads to lower production quality due to a lack of quality control checks. It

becomes difficult for corporations to control their production quality. Instead of just focusing

on foreign relocation, more focus should be on transferring managerial skills too. Foreign

relocation disturbs the culture of the corporations as the mechanisms of recruitment gets

disturbed. Hence, one must consider the effect of foreign relocation on recruitment and the

quality control culture too.

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Furthermore, the operations of corporations in a foreign county can also result in

logistical problems. As the demand for the product grows, the ability to ship the products

from a foreign country to the whole world becomes a hassle. However, with the increase in

the agreements among the countries through the forum of WTO, logistical issues are being

addressed. (Schuler, 1996)The logistical issue includes shipping costs, customs levies, etc.

However, even after paying such taxes, the corporations are in benefit. So the world must

come together on the platform of the World Trade Organisation to make this process s

smooth as possible.

PEST Analysis

As discussed above, there are numerous issues involved with foreign relocation, and a

PEST analysis is required before a firm decision on the relocation can be reached.

Social aspects of the country of the origin and the country where the company will be

relocated must be studies. Hofstede’s cultural framework is a guiding tool for businesses

wanting to relocate. (Tüselmann, 1999)The guidelines provided by Hofstede focuses on

power-distance, individuality, achievement orientation, etc. So if the culture of the host

country is antithetical to the ethos of the company, it would be detrimental for the firm to

move to such a country.

Economic considerations vary but most of the corporations focus on decreased labor

costs. Instead of wanting to improve the quality of the products. The company must also look

into the tax regime of the host country. If the tax structure is too esotetic , it would efface the

advantage gained through heir lower labor cost.(Rojec and Damijan, 2008) The focus of the

corporations must be to improve their profitability by considering labor costs, tax regimes,

and logistical costs, etc. Moerver, to maintain their customers, corporations must also focus

on the quality of the products,

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Political factors are a major source of concern too because political instability can

lead to the depravity of the long term vison for a company in the host country As mentioned

before, BREXIT has had a momentous effect on the global corporations residing the UK. A

political decision taken by the government will have far-reaching implications for

coportaions and the country. Now the corporations would be wary of investing in the UK

Conclusion

Though it seems like an attractive option, insead of juming on the bandwaogon of relocation,

one must assess the situation by conducting thorugh cost & benefit analysis. Labour cost is

one of the many factors that are important fo the function of any organization. So making a

decision based on only one facro is noting ut futile. A visionary corporation, instead of

focusing on gaining short temr gains, would focus on long term benefits and most important

of them is the retention of the customers

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