Marketing and Polish Government
Unit 3 Answers Section A
1. Briefly analyse two reasons why a company such as Dell may wish to relocate its manufacturing operations to another country.
A multinational such as Dell may wish to relocate in Poland due to a variety of reasons of which the main reasons in this case is the subsidy of €52.7, given by the polish government to Dell. With the subsidy the Dells cost of production falls so it is profitable for them to go to Poland. With the subsidy “S” will shift to “S1” as shown below.
Price of computers D S S1
Quantity of computers
Another possible reason for such relocation could be lower wage costs and tax advantages in Poland. Lower taxes and lower wages will reduce Dell’s cost of production. However the impact of wage costs in Poland compared to Ireland depends on how far Dell depends on labour – E.g. Automation may be involved.
2. Analyse two reasons why the Polish government were willing to pay a €52.7 million aid package to attract Dell.
The Polish Government has given the subsidy of € 52.7m to attract the world’s second largest producer of personal computers with the aim of having a profitable BOP and tax revenue. When Dell comes to Poland, Poland’s FDI will rise making the capital account of the BOP favourable. Dell will also export to other parts of the world from Poland so Poland’s visible exports will rise, creating a positive trade balance. Dell was Ireland’s biggest exporter so this might be a possible reason for Polish government to attract Dell. However in the long run Dell will repatriate profits. This will affect Poland’s BOP. They might also do transfer pricing (make less profit in Poland and avoid paying tax) which will be a barrier to Polish government’s objective of increasing tax revenue. Dell might also create large number of jobs in Poland so it is one possible reason for the government to give an aid package and attract them. This will help to reduce unemployment rates in Poland. However like most multinationals
1. Briefly analyse two reasons why a company such as Dell may wish to relocate its manufacturing operations to another country.
A multinational such as Dell may wish to relocate in Poland due to a variety of reasons of which the main reasons in this case is the subsidy of €52.7, given by the polish government to Dell. With the subsidy the Dells cost of production falls so it is profitable for them to go to Poland. With the subsidy “S” will shift to “S1” as shown below.
Price of computers D S S1
Quantity of computers
Another possible reason for such relocation could be lower wage costs and tax advantages in Poland. Lower taxes and lower wages will reduce Dell’s cost of production. However the impact of wage costs in Poland compared to Ireland depends on how far Dell depends on labour – E.g. Automation may be involved.
2. Analyse two reasons why the Polish government were willing to pay a €52.7 million aid package to attract Dell.
The Polish Government has given the subsidy of € 52.7m to attract the world’s second largest producer of personal computers with the aim of having a profitable BOP and tax revenue. When Dell comes to Poland, Poland’s FDI will rise making the capital account of the BOP favourable. Dell will also export to other parts of the world from Poland so Poland’s visible exports will rise, creating a positive trade balance. Dell was Ireland’s biggest exporter so this might be a possible reason for Polish government to attract Dell. However in the long run Dell will repatriate profits. This will affect Poland’s BOP. They might also do transfer pricing (make less profit in Poland and avoid paying tax) which will be a barrier to Polish government’s objective of increasing tax revenue. Dell might also create large number of jobs in Poland so it is one possible reason for the government to give an aid package and attract them. This will help to reduce unemployment rates in Poland. However like most multinationals