A firm may possess various COMPETITIVE ADVANTAGES over rival suppliers (‘firm-specific advantages’) in the form of patented process technology or a unique branded product which it can better exploit and protect by establishing overseas supply facilities. Direct investment may enable a firm to reduce its distribution costs and keep in touch more closely with local market conditions – changes in consumer tastes, competitors' actions etc. Moreover, direct investment enables a firm both to avoid governmental restrictions on market access such as TARIFFS and QUOTAS, and be able to benefit from other ‘country-specific advantages’ such as the availability of government cash grants and subsidies on inward investment. In the case of sourcing, direct investment allows the MNE to take advantage of some countries' lower labour costs or provides access to superior technological know-how.
See BUSINESS STRATEGY, CAPITAL INFLOW, HOST COUNTRY, FOREIGN DIRECT INVESTMENT, INDUSTRIAL LOCATION, INTERNALIZATION, TRANSFER PRICE, OFFSHORE PRODUCTION, INTERNATIONAL MARKETING, FOREIGN CURRENCY TRANSLATION, DOUBLE TAXATION, UNITARY TAXATION, WITHHOLDING TAX, EXCHANGE RATE EXPOSURE, SCREWDRIVER OPERATION, MIXER COMPANY, TAX HAVEN.