Question

Minimizing Trade Barriers (Scenario)

National Appliance Corporation (NAC) needs to build a new manufacturing facility to meet the increasing demand for professional-grade appliances. NAC managers are considering building the facility in Mexico but are hesitant because of the high tariffs involved. Another possible location for the facility is India; however, the country also imposes high tariffs. Wherever NAC builds a plant, parts will need to be imported from other nations.

Which of the following would be most important for NAC managers to consider while taking a decision in favor of building a facility in Mexico or India?"**

a) Export subsidies
b) Political stability
c) Import quotas
d) Currency exchange rates

Answer 1

For National Appliance Corporation (NAC), the crucial considerations for deciding on a manufacturing facility's location should be import quotas, political stability, and currency exchange rates to ensure a stable, cost-effective, and efficient import process for parts.

Step-by-step explanation:

When National Appliance Corporation (NAC) is considering building a new manufacturing facility in Mexico or India, the most important factors to consider would be c) Import quotas, b) Political stability, and d) Currency exchange rates. Import quotas can limit the number of parts NAC can import, affecting the production capacity and cost structure of the manufacturing facility. Political stability is vital for ensuring the long-term sustainability of the facility's operations, investment security, and predictability of business conditions. Currency exchange rates can notably impact the cost of importing parts and the profitability of the facility as it affects the relative price of goods and services between the two countries.

While export subsidies are related to trade barriers, they are more relevant to NAC's decision if the company plans to export appliances from the facility rather than the importation of parts. Therefore, considering import quotas, political stability, and currency exchange rates aligns best with NAC's requirements for building a facility in a cost-effective and low-risk environment.