Delocalization of Firms: Meaning, Advantages and Disadvantages

Delocalization of firms refers to establishment of firms in different parts of country as opposed to localization where firms are concentrated in one area. The government may encourage delocalization in order to achieve various objectives by using various methods such as giving free land, tax benefits and offering subsidies.

Advantages of Delocalization

  • Delocalization reduces effects caused by occurrence of war, terrorism attacks or earthquakes.
  • Another advantage of delocalization of firms is that it provides employment opportunities to people living in rural areas.
  • It also reduces rural-urban migration
  • Encourage balanced regional development
  • Delocalization provides a market for locally produced raw material.
  • Local communities are able to get the produced goods without necessarily travelling very far.

Disadvantages of Delocalization

  • Spread of pollution to various parts of the country
  • Skilled manpower may not be readily available in rural areas.
  • Security may be a problem in some areas.
  • Service industries e.g. banks may not be available in rural areas.
  • Incentives offered by government are an added burden to tax payer.
  • Continued protection from foreign competition by government may make the firm to continue producing substandard products.

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