Question

Many larger U.S. companies have significant investments in foreign operations. For example, McDonald's Corporation, the food service company, obtains 47 percent of its consolidated revenues and 44 percent of its operating income from, and has 45 percent of its invested assets in, non U.S. locations. Unisys, the information systems company, obtains 51 percent of its consolidated revenues and 65 percent of its operating income from, and has 40 percent of its invested assets in, non-U.S. locations. Foreign operations impose additional types of operating risks to companies, including the risks from changes in the exchange rates for currencies, statutory acts by the foreign governments, and producing and marketing goods in an environment outside the United States.
With the passage of the North American Free Trade Agreement (NAFTA), more companies are confronted with the decision of whether or not to expand their production and marketing investments to Canada and Mexico.

Required
Using NAFTA as a discussion focus, address the following questions:
a. Explain why a U.S. company might find it advantageous to increase its production capacity of its subsidiaries in Mexico. Describe some circumstances under which it would be disadvantageous for a U.S. company to increase its investment in production subsidiaries located in Mexico.
b. In your opinion, would an increase in U.S. companies' investments in Mexico and Canada be good or bad for U.S. consumers?
c. What are some possible solutions to the possible problem of an increase in the U.S. unemployment rate if U.S. companies shift their production facilities to non-U.S. locations? Select one and discuss the pros and cons of that possible solution.
d. What conclusion can you draw from the attempts of the U.S. government to decrease barriers to international trade and investment? In your opinion, is this a good effort on the part of the government, or do you feel this effort should be changed?



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  • CreatedMay 23, 2014
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