Question

5 (20 points) Give three different reasons why a firm chooses to be a multinational, i.e., operate in more than one country, rather than operate in one country and export to other countries. Your reasons must include both horizontal and vertical multinationals. Give a detailed explanation for each reason.

Answer 1

5) 1) one of the reason why it can be mentioned that a country can choose to be multinational because of the fact that if the production is carried out in the host country as well them that tax for that particular good might reduce as a result of which the demand can be triggered in the host country as well where this can be considered as horizontal multinational case

2) another main reason why it can be mentioned that a country can choose to be multinational is the advantage of a particular input factor such as if a United States company is investing in China then it means that it is taking the advantage of cheap labour in China which is an input tractor so that the cost of production goes down where this can be considered as the vertical multinational it fulfills the role of a supplier.

3) another reason why a country can choose is the existing demand conditions and weak competition for the particular product in the country which might be luring for a country to make more profits and that is why it can decide to enter that market.