Why do U.S. corporations build manufacturing plants abroad when they could build them at home?


Why do U.S. corporations build manufacturing plants abroad when they could build them at home?

Answer and ExplanationSolution by a verified expert


The core activity of any business is the production of goods. Efficiency in the production determines the quality of the final output. When a company goes global, it has to decide the location of its manufacturing plants, considering various factors. Most of the US multinational corporations build manufacturing plants abroad due to following reasons.

The primary reason for setting up the manufacturing plants abroad is the availability of the comparatively cheaper raw materials. The U.S. is not blessed with an abundance of natural reserves. To get access of foreign natural resources, it is important to produce in foreign land. Many U.S. oil companies have their subsidiaries in foreign countries to avail the benefit of basic resources.
Transportation cost is one of the important factors for a multinational corporation. Conducting the business in foreign land by having a production unit in the home country, will always amount to high transportation costs. Thus setting up manufacturing business in the country where products are finally distributed is less costly.
The corporate tax rates, duties and other statutory taxes in the United States are higher among many countries. Thus producing in the foreign country and selling there itself amounts to lesser tax liabilities.
Apart from the monetary benefits, there are many non-profit behavioral and strategic considerations. This includes increasing the market share in foreign markets, enhancing the social image of corporate officers and the entity as well.

Thus, the U.S. companies find it more beneficial to set manufacturing plants abroad, rather than in the home country.

Verified Answer

US corporations build production plants in foreign countries rather than building at domestic locations because of cheaper raw material, low transport costs, liberal taxes and strategic advantages.

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