Final answer:
External factors like tax incentives and economic stability, along with market orientation and openness to international trade, provide businesses with a competitive advantage by reducing costs, encouraging investment, and fostering economic growth.
Step-by-step explanation:
External factors such as tax incentives or economic stability are crucial for giving businesses a competitive advantage. Tax incentives can reduce the operational costs of a company, enabling them to invest more in growth or offer more competitive prices. Economic stability provides a predictable environment for businesses to plan long-term, manage risks effectively, and make significant capital investments with confidence.
These factors, along with market orientation, where there are rewards and incentives for increasing human and physical capital, encourage overall macroeconomic growth. Openness to international trade, investment in physical capital, fostering of new technologies, and access to well-functioning labor markets serve as key drivers in this process.
Moreover, firms consider multiple aspects when deciding where to locate a new factory. Beyond tax levels and environmental regulations, the decision takes into account labor and capital costs, proximity to reliable suppliers and customers, infrastructure quality, and the proficiency of local governance.
The comprehensive evaluation of these factors contributes to a firm's competitive stance in the global market. Consequently, it is not merely the incentives, but the holistic environment which includes market orientation and international trade, that endows businesses with the edge needed to thrive.