Question

The Peterson​ Group, headquartered in Los​ Angeles, specializes in the​ design, production, and distribution of apparel for​ men, women, and children. The company has a​ well-established international​ presence, operating 92 stores across 8 countries. The company is considering moving its production operations to New​ Zealand, with a​ long-term goal of eventually entering foreign markets. Some company executives favor the idea of contract manufacturing using local​ players, whereas others feel a direct investment would be better. Which of the​ following, if​ true, would most weaken the argument for direct​ investment?

a) New Zealand has strict labor laws favoring foreign direct investment.
b) The cost of local resources in New Zealand is significantly lower than in other potential locations.
c) Political instability in New Zealand could pose risks for direct investment.
d) The infrastructure for contract manufacturing in New Zealand is underdeveloped.

Answer 1

The option suggesting that political instability in New Zealand could pose risks for direct investment most weakens the argument for direct investment since it adds unpredictability and increased operational risk, contrary to the long-term stability sought in direct investments.

Step-by-step explanation:

The question posed concerns the strategic decision-making process of The Peterson Group in potentially moving its production operations to New Zealand, with two options on the table: contract manufacturing or direct investment. Considering the argument for direct investment, an aspect that would weaken this argument would be a factor that increases the risk or reduces the potential benefits of such a move. Of the options provided, (c) Political instability in New Zealand could pose risks for direct investment is most likely to weaken the argument for direct investment because political instability can increase operational risk, lead to unpredictable changes in the business environment, and make it difficult to establish a stable long-term presence in the country, which is a key consideration for direct investment.