Consider Social Economic And Political Effects Of Company Relocation

Benefits and Drawbacks of a Company Moving Its Production Operations to a Developing Country: Social, Economic and Political Effects of Company Relocation
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Benefits and Drawbacks of a Company Moving Its Production Operations to a Developing Country: Social, Economic and Political Effects of Company Relocation
Introduction
While developing countries are characterized by low economic, technological, and living standards, they are vast with huge population, abundant natural resources, and unexploited markets. Developing countries have a tremendous potential for agricultural production and are seeking technological solutions to become more socially and economically advanced. This makes developing countries a huge market potential that could attract more companies to invest in these areas. Companies often move operations to developing countries when the conditions are tight to thrive, considering political, social, and economic factors that influence business operations to remain competitive. There are two motivations directly related to a company’s decision to move its production operations to a developing country. The first one is the need of the company to minimize operation costs and the other is the company’s need to take advantage of the opportunities for collaboration and bring forth new ideas (Balbontin & Hensher, 2018). This paper reviews the motivations for business relocation by analyzing the benefits and drawbacks for a company moving its production operations to a developing country. Therefore, companies should move their production to a developing country when the economic, social, and political conditions will allow that company to thrive.
It is common for developing nations to lack the production capacity, but the attraction of more investments significantly improves the growth prospects and requires incentives to achieve production potential. For instance, developing nations have readily available cheap labour and copious resources that attract more foreign direct investments to spur and sustain growth. According to Cai, et al. (2018), countries with less environmental regulation policies mainly attract outside companies to improve the export capacity. In relation to attracting investments, companies also relocate and exploit the resources abundant in developing countries at a lower cost. Coyne and Moberg (2015) argue that some developing countries are well endowed with labour and natural resources, but lack investments to maximize their potential. Due to lack of capital needed for processing and manufacturing of the raw materials to finished goods, developing countries have become an investment hub that provides raw materials such as agricultural produce for manufacturing industries in developed countries. At the same time, companies respond to incentives, where they can expand operations in new areas, and serve a larger customer base. For instance, according to Coyne and Moberg (2015), firms will tend to emphasize on how fiscal incentives will influence their decisions and governments bid to get such incentives. Overall, if properly implemented, the decision of a firm to relocate to a developing nation and international product will be a win-win situation for both the home and host country.
A firm’s relocation decisions can be influenced by its ability to solve a number of productive problems in developed countries and the zeal to improve the welfare of the local citizens. Studies show that most companies choose to relocate to areas where there are lax regulations because there are risks associated with their failures to address the environmental problems associated with their production. Cai et al. (2018) has shown that 22 developed countries today use China as a pollution haven, and China does the same in 19 other developing countries. In addition, the social cultural contexts can largely influence the uniqueness of both local and domestic production. Aspects such as knowledge generation and transfer is critical to the local community in enhancing innovation. For instance, competitiveness will always depend on the local context, and the translation to the global context (Ferreira, Fernandes, Cristina & Raposo, 2017). Lastly, multinational companies (MNCs) often want to focus on corporate social responsibility (CSR) initiatives that are most relevant and befitting the local setting. According to Gruber and Schlegelmich (2015), reviews of MNCs activities, their CSR programs, and sustainability reports, as well as interviews with CSR managers indicate what influences the choice of CSR initiatives in African countries among MNCs. In general, robust institutions and productive structures coupled with the social context define the motivations for firms to relocate.
Even though the location of production units will influence the success of firms, it is necessary to consider the interests of stakeholders. Firms will want to relocate production departments to developing countries to gain a more competitive advantage because of low costs of ...