Changes in Comparative Costs
Changes in Comparative Costs
A company may export successfully because its home country has a cost advantage. The home-country cost advantage depends on the price of the individual factors of production, the size of operations, transportation of
finished goods, and the productivity of the combined production factors.
None of these conditions affecting cost is static; consequently, the least-cost location may change over time. Recall in the opening case that a factor affecting Bridgestone's decision to locate in the United States was the fact that Japanese costs (measured in dollars) grew much faster than those in the United States, owing largely to a rise in the value of the yen relative to the dollar.
The concept of shifts in comparative costs of production is closely related to that of resource-seeking investments. A firm may establish a direct investment to serve a foreign market but eventually import into the home country from the country to which it was once exporting. Some of these concepts will be discussed in the following section on resource-seeking investments.
A company may export successfully because its home country has a cost advantage. The home-country cost advantage depends on the price of the individual factors of production, the size of operations, transportation of
finished goods, and the productivity of the combined production factors.
None of these conditions affecting cost is static; consequently, the least-cost location may change over time. Recall in the opening case that a factor affecting Bridgestone's decision to locate in the United States was the fact that Japanese costs (measured in dollars) grew much faster than those in the United States, owing largely to a rise in the value of the yen relative to the dollar.
The concept of shifts in comparative costs of production is closely related to that of resource-seeking investments. A firm may establish a direct investment to serve a foreign market but eventually import into the home country from the country to which it was once exporting. Some of these concepts will be discussed in the following section on resource-seeking investments.
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