Marja Eskman, Senior Consultant, Fisher International
Imports are different from domestic production in very important ways. They are subject to trade wars, or even simple trade barriers like tariffs and restrictions based on quality measurements. Their competitiveness is subject not only to normal cost factors, but also to exchange rate fluctuations. Lastly, imports carry with them a weaker connection between customer and supplier, which can affect the reliability of the supply.
The decision to invest in domestic production forces other considerations, of course. For example, the political and economic risk of the host country, the ability to repatriate profits, and cultural differences and obstacles that may be present for the investor if a foreigner. These, and other factors, can determine whether products are imported or made in-country.
We will use Russia as a case example to discuss the following questions. What are possible reasons to prefer imports over local production? When does the import volume justify investment in local production? Does the lack of local production affect demand development? What will happen to the market balance if Russian imports are reduced significantly?
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