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IAI Actuarial Core Principles · Business Economics · Globalisation and multinational business

A large Indian IT services firm expands by setting up delivery centres in several foreign countries. Which of the following is the most direct benefit to the firm of this form of globalisation?

The most direct benefit is access to larger markets and cheaper or specialised labour, which supports economies of scale. Globalisation does not eliminate currency risk, competition, taxation or fixed costs, so the other statements are incorrect.

  1. AElimination of all exchange rate risk because costs and revenues are in the same currency
  2. BAccess to larger markets and to lower-cost or specialised labour, allowing economies of scaleCorrect
  3. CGuaranteed protection from competition in the home market
  4. DAutomatic exemption from taxation in the host countries
  5. A fall in the firm's fixed costs to zero

Explanation

Operating across countries lets a firm sell to bigger markets and use cheaper or skilled labour, spreading fixed costs over more output (economies of scale). It does not remove exchange rate risk entirely, protect against competition, grant tax exemption, or remove fixed costs.

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