Q1. [3] medium initial-understanding
Why do multinational corporations (MNCs) prefer to set up production in multiple countries rather than manufacturing everything in a single location?
Generated by claude-sonnet-4-6 · 2026-06-26 13:23 · grounding rag
Model Answer
MNCs prefer to set up production in multiple countries for the following reasons:
- Cheap labour and resources: MNCs set up factories where labour and other resources are available at low cost, reducing the cost of production.
- Closeness to markets: Production units are located near major markets, reducing transportation costs and time.
- Specialised advantages: Different countries offer different benefits — for example, China offers cheap manufacturing, India provides skilled engineers and English-speaking workforce, and this can result in 50–60% cost savings for the MNC.
The overall aim is to lower production costs and earn greater profits.
Source: Chapter 4 — Production Across Countries / Interlinking Production Across Countries
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Explanation
- Examiners look for three distinct points for 3 marks — one mark each.
- The key ideas are: (1) cheap labour/resources, (2) proximity to markets, (3) specialised country-wise advantages leading to cost savings.
- Always link back to the core motive: lower costs = greater profits.
- Avoid writing vague statements like "it is beneficial" — be specific with examples from the textbook (China, India, Mexico).