Question

When entering markets in a region, you should always choose the country with the lowest manufacturing costs for local production.
a. True
b. False

Answer 1

Answer:

b. False

Explanation:

Manufacturing costs are not the only thing that you have to consider when deciding where to start local production. E.g. you work for a multinational that wants to start selling its products in Africa. The country with the lowest production costs is probably South Sudan (or maybe some other country that is going through severe economic recessions or internal conflicts), but that doesn't necessarily mean that you are going to set up a facility there.

Production costs are just one factor to consider, other factors are as equally or even more important, e.g. market size, purchase power, economic stability, legal order and stability, etc. Why do you think that MB or BMW set up huge factories in America if production costs are much lower in most of the world.