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Economics

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Ford Motors, an American company, is one of the world’s largest automobile manufacturers with production spread over 26 countries of the world. Ford Motors came to India in 1995 and spent Rs. 1700 crore to set up a large plant near Chennai. This was done in collaboration with Mahindra and Mahindra, a major Indian manufacturer of jeeps and trucks. By the year 2017, Ford Motors was selling 88,000 cars in the Indian markets, while another 1,81,000 cars were exported from India to South Africa, Mexico, Brazil and United States of America. The company wants to develop Ford India as a component supplying base for its other plants across the globe.

By setting up their production plants in India, MNCs such as Ford Motors tap the advantage not only of the large markets that countries such as India provide, but also the lower costs of production. Explain the statement.

Global & Ind Econ

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Answer

The given statement suggests that multinational corporations (MNCs) like Ford Motors benefit in two significant ways by setting up production plants in countries like India:

  1. Large Markets — By establishing production facilities in India, MNCs can cater directly to this vast consumer base. This proximity allows them to reduce logistical costs, such as shipping and import duties, which can be substantial when supplying products from overseas.
  2. Lower Costs of Production — India offers lower costs of production compared to many developed countries. This cost advantage is because of lower labour cost, operational cost and support from the government.

Due of these advantages they can produce goods more cost-effectively while simultaneously gaining better access to a large and growing consumer base. This enhances their profitability.

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