Short and long term returns on overseas market Essay

Short and long term returns on abroad commercialise - Essay ExampleMany firms, like large oil or chemical companies, operate in industries with large economies of scale and their operations spill across national boundaries simply to be competitive.Cost considerations (e.g. transport) atomic number 18 important in choosing whether to increase exports or invest overseas. Equally tariff barriers to trade can kick upstairs lease investment, but non-tariff barriers are also important. Many services are not exportable in any direct sense and have to be delivered in the overseas market through direct investment. They need to respond to the changing demand considerations of overseas markets - especially where product specifications are different from the fireside market. This may make it sensible to locate closer to the main centres of demand, to enable easier adaptation without disruption to end product in the domestic market. Other disincentives to direct trade could be that competi tion takes place on suit other than price and quality of output. For example, competition in few product markets may be primarily in terms of after sales service.Most direct investment, as with trade, occurs between similar industrial countries. direct investments will take place without displacing trade. They may even encourage greater trade flows, because average inputs of merchandise will need to be exported to support the overseas plants. In this instance, as in some others, direct investment is complementary to trade. On other occasions, it may substitute for it. Another explanation for overseas investment with parallels in trade theory is a version of the product cycle theory. Here production initially begins in the domestic country where the product was developed, with good access to the skilled designers and technicians responsible for inventing the product. As the product matures, these inputs become less important and production shifts to a country with a cost vantage in the production of the now standard good. Production overseas is cheaper and goods are exported back into the domestic sparing. A further explanation for firms investment in a foreign market rather than exporting goods to it is that thither are external benefits (or spillovers) from overseas investment. These are most likely to stem from location in markets which eagerness trends in demand, or are the centers of excellence in terms of production techniques, design, marketing or organization. wherefore overseas investmentThe prime motivation for investment in the international market must be that the stream of earnings is expected to exceed that which could be earned in the domestic markets. This could often be attributed to lower production costs in other countries. This investment will ultimately benefit the economy as a whole. The stream of income from overseas investments changes the composition of the current account of the balance of payments. Most directly, it does so by i ncreasing the economys earnings from abroad. But it may also indirectly promote a profits trade improvement.Portfolio InvestmentIn portfolio investment, there is no attempt by portfolio investors to actively control the prudence of a firm, rather it aims to seek out