Conditions under which companies may find more advantages to locate production in foreign countries than export to them are:

(A) When production abroad is costlier than at home?
(B) When transportation costs are too high for moving goods or services internationally?
(C) When companies lack domestic capacity?
(D) When governments inhibit the import of foreign products?
(E) When products and services need not be altered substantially to gain sufficient consumer demand abroad?

Choose the correct answer from the options given below:

Correct option is B

Companies often choose foreign production over exports when certain economic and strategic factors make exporting less viable. The following conditions justify this decision:

• (B) When transportation costs are too high for moving goods or services internationally:
  High transportation costs can make exporting unprofitable, especially for bulky, heavy, or perishable products. Establishing local production reduces logistics expenses and ensures timely supply to the market.

• (C) When companies lack domestic capacity:
  If a company does not have enough production capacity in its home country to meet both domestic and foreign demand, setting up production abroad allows it to scale up operations while tapping into new markets.

• (D) When governments inhibit the import of foreign products:
  Some countries impose high tariffs, import restrictions, or quotas to protect domestic industries. In such cases, foreign production is often the only way for companies to access the local market without trade barriers.

​Information Booster:

• Setting up production in foreign countries helps reduce high transportation costs, making products more affordable.

• Many governments impose trade barriers like tariffs, quotas, and import restrictions, forcing companies to manufacture locally.

• Foreign Direct Investment (FDI) allows companies to expand globally when exporting is not feasible.

• Companies lacking domestic production capacity establish foreign units to meet both local and international demand.

• Manufacturing abroad can help companies avoid long shipping times and ensure faster delivery to customers.

• Businesses can increase market share by producing locally, which may also improve customer trust and brand presence.

• Examples include Toyota, Apple, and Nestlé, which set up factories worldwide to optimize production and reduce costs.

Additional Knowledge:

1. (A) When production abroad is costlier than at home: 

   • If producing in a foreign country is more expensive, companies would avoid foreign production and prefer exporting instead.

   • High labor costs, expensive raw materials, or strict regulations can make foreign production unfavorable.

2. (E) When products and services need not be altered substantially to gain sufficient consumer demand abroad: 

   • While standardized products help in global expansion, this factor alone does not justify setting up foreign production.

   • Many companies still export standardized products instead of manufacturing abroad.​