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Auto Trade Agreements - Essay Example

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Auto trade agreements Name of Institution Date The North America Free Trade Agreement was signed in 1986 by three main countries namely Mexico, Canada and the United States of America. This trade agreement was to create a trilateral trading block with the benefits of the open trade between the three countries…
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Auto Trade Agreements
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Download file to see previous pages The type of the investment strategy that the Nissan Company is using in Mexico is Foreign Direct Investment (FDI) strategy which has enabled this company to invest its assets in the country. A company can decide to invest directly in a certain nation in order to enjoy the benefits of Foreign Direct Investment strategy. However this strategy has its own shortcomings depending on the economic and the political conditions of the host country. 1a). Foreign Direct Investment as a strategy in investment has various advantages and disadvantages. One of the main advantages of Foreign Direct Investment is that a company is able to expand its market therefore making the company compete with other firms at a global level. New customers will be attracted and thus the company will be able to make more profits. FDI has improved the level of competition between various firms in that a company will strive at producing the best quality product in order to attract the customers and keep the business in operation. For the Nissan company to prosper in the competitive market it must be able to make good quality cars that can easily attract customers. Through this investment strategy, the Nissan Company is able to integrate the use of the new technology that is available in Mexico. The new technology can help the Nissan Company to produce automobiles which are of improved quality as well as being unique in the market (Siddharthan and Lakhera, 2005). Foreign Direct Investment has enabled economic growth in Mexico as the host country. This is because investment in a country enables a nation to get finances or government income through the collection of taxes thus boosting the economic growth of the nation. The finances can as well be collected through the foreign exchange concepts. Through the FDI there is technology diffusion as well as knowledge transfer. In this context, the Nissan Company can benefit from the knowledge of the people of Mexico as well as integrating the technology of the Mexican people in the Automobile industry. Foreign Direct Investment also helps in the creation of job opportunities since the parent company will be willing to employ new people in the host country who will help in steering the company to success. The employment of skilled workers in the host country is also beneficial to the company in that these people understand the culture of their country thus it will be easy for these employees to interact effectively with the potential customers. Direct Foreign Investment has a negative impact on the domestic firms that are available in the host country in the Nissan Company might phase out many firms in Mexico which are not competitive in the market. The introduction of sophisticated technology in the Mexican market might threaten small firms thus making them to close down their businesses. The existence of too many firms that expand through the Foreign Direct Investment strategy might cause an increase in the inflation rates of Mexico as the host country which will consequently lead to the rise in prices of good. The end result is that the Nissan Company will have to re-adjust its prices thus making losses in the long run. This strategy used by the Nissan Company enables it to gain the competitive advantage in the global market since the integration of new technology enables the company to produce high quality product that can compete at the global market ...Download file to see next pagesRead More
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