MULTIPLE MOTIVES
MULTIPLE MOTIVES
Although previous discussions within this chapter have categorized investments by separate motives, in reality most decisions to invest abroad, such as the Bridgestone case at the beginning of the chapter, are based on multiple motives. Another such combination of influences may be illustrated by Brazilian automobile investments.
As the automobile became a mature product, there were many opportunities for saving labor costs by moving operations to a country with cheap labor, such as Brazil. One problem, however, is that economies of large-scale operations are needed to reduce the total cost of the vehicles. As long as car imports were permitted by Brazil, the U.S. and European producers could serve the Brazilian market more cheaply by exporting than by manufacturing a low volume in Brazil for that market. To move all operations to Brazil would be too costly and would so disrupt domestic operations that the imposition of some type of home-government sanctions would become inevitable. However, in the next stage, the Brazilian government required local production as a requisite for serving the Brazilian consumer. Consequently, Ford, GM, Chrysler, Volkswagen, Daimler Benz, Saab-Scandia, Alfa Romeo, and Fiat established production facilities. The car companies built plants because the Brazilian market was deemed too important to lose and too important to let competitors have to themselves. Output became high, and Brazil is now a major exporter, even sending components back to home countries.32
Political motives for investment are seldom isolated from economic motives. To encourage companies to invest abroad, governments must consider the objectives of the potential investors. During the early 1980s, for example, U.S. policymakers reasoned that many U.S. firms might find it advantageous to tap cheap labor sources in the Caribbean, thereby strengthening the economies of countries unfriendly to Castro's Cuba. Consequently, various incentives were enacted to improve the profitability of U.S. investors in the Caribbean, such as allowing certain Caribbean output to enter the United States virtually free of restrictions. Investors, acting purely on economic motives, helped to achieve governmental objectives.
Although previous discussions within this chapter have categorized investments by separate motives, in reality most decisions to invest abroad, such as the Bridgestone case at the beginning of the chapter, are based on multiple motives. Another such combination of influences may be illustrated by Brazilian automobile investments.
As the automobile became a mature product, there were many opportunities for saving labor costs by moving operations to a country with cheap labor, such as Brazil. One problem, however, is that economies of large-scale operations are needed to reduce the total cost of the vehicles. As long as car imports were permitted by Brazil, the U.S. and European producers could serve the Brazilian market more cheaply by exporting than by manufacturing a low volume in Brazil for that market. To move all operations to Brazil would be too costly and would so disrupt domestic operations that the imposition of some type of home-government sanctions would become inevitable. However, in the next stage, the Brazilian government required local production as a requisite for serving the Brazilian consumer. Consequently, Ford, GM, Chrysler, Volkswagen, Daimler Benz, Saab-Scandia, Alfa Romeo, and Fiat established production facilities. The car companies built plants because the Brazilian market was deemed too important to lose and too important to let competitors have to themselves. Output became high, and Brazil is now a major exporter, even sending components back to home countries.32
Political motives for investment are seldom isolated from economic motives. To encourage companies to invest abroad, governments must consider the objectives of the potential investors. During the early 1980s, for example, U.S. policymakers reasoned that many U.S. firms might find it advantageous to tap cheap labor sources in the Caribbean, thereby strengthening the economies of countries unfriendly to Castro's Cuba. Consequently, various incentives were enacted to improve the profitability of U.S. investors in the Caribbean, such as allowing certain Caribbean output to enter the United States virtually free of restrictions. Investors, acting purely on economic motives, helped to achieve governmental objectives.
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