The diagram shows the production network of Noro, a bicycle company based in Japan. Noro has made a new FDI decision to build an assembly plant in Vietnam. ...
Question 1 Report
The diagram shows the production network of Noro, a bicycle company based in Japan. Noro has made a new FDI decision to build an assembly plant in Vietnam. Batteries are produced in South Korea, frames are produced in Vietnam and finished electric bicycles are sold in Australia. The company chose Vietnam because labour costs are lower than in Japan and it can use a nearby port for international trade. Local suppliers expect that the factory will employ 1 200 workers.
The Vietnam government welcomes the investment but wants to know whether the increase in global production will improve economic development rather than only raise the company's profit.
(a) Define foreign direct investment (FDI). [2]
(b) Identify two reasons, other than lower labour costs, why Noro may locate production in Vietnam. [4]
(c) Explain how this FDI could affect Vietnam's economic growth and unemployment. [8]
Answer Details
(a) Foreign direct investment is investment by a foreign firm involving a lasting productive asset or control, such as building and operating a factory abroad. [2]
(b) Reasons other than lower labour costs include access to a nearby port and transport links, access to Asian suppliers, access to export markets, government incentives, political stability, and availability of suitable labour. Any two are required. [4]
(c) The factory directly employs workers, reducing unemployment. Workers receive wages and spend at local firms, creating further employment through the multiplier. Local businesses may supply frames, food, transport or maintenance. [4]
FDI can transfer skills, management methods and technology, raising productivity and output. Exports of finished bicycles earn foreign exchange and increase GDP, supporting economic growth. [3]
Benefits may be limited if profits are repatriated, imported components dominate production, or jobs are low paid. [1]
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