Sample Essay
Location theory is often used by scientists wishing to understand the factors that influence where multinational companies (MNCs) choose to locate their overseas operations. Usually there are no data on the cost of individual MNCs or the expenditure of TNCs in countries where firms do not work; (Head 1995) researchers tend to study the characteristics of different places, which should make them more or less attractive, such as the corporate tax rate in the country. These features include factors related to the country’s politics, economy and technology environment, and strategic considerations for individual MNCs. They discussed in detail below.
Policy of the Host Country
Political conditions of a country have a large impact on its attractiveness. Policies such as corporate tax rates affect the costs of MNCs. Thus, a disproportionate amount of FDI (relative to GDP) (Grimwade 1999) occurs in countries with lower tax such asIrelandand tax havens like theCayman Islands. Conversely, some countries impose restrictions on FDI, for instance, makes a wholly-owned subsidiaries requiring technology transfer, (Fujita 1999) restricting the repatriation of profits and mandating a percentage of value added produced in the local market. Other things being equal, countries with more restrictive policies towards FDI are generally less attractive FDI locations. Despite the global trend towards liberalization policy for FDI (OECD 2006), restrictions still exist in some form or another in almost every country.
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