Guest lecture Flashcards
What did the guest lecture focus on?
The presentation focused on Local Content Requirements (LCR) within the Renewable Energy Space.
Vestas experience that when they want to do business in a specific country, the government often uses non-tariff measures to ensure that Vestas commit to the country and thereby build factories and create jobs in that specific country.
This non-tariff measure is called local content requirement
What is LCR?
LCR is a policy that includes specific requirements that foreign producers need to follow to conduct business in a specific market.
It is a way of guaranteeing that a specific percentage of the product that vestas is selling has been made in the country where they want to do business.
LCRs are commonly targeting sector-specific rules where the most typical requirements are sourcing of local parts and components, data storage and the use of local labor.
What are the main reasons for governments to implement LCR?
The main reason for governments to implement LCR is to encourage the development of local industries, use local labor, and boost the economy
What is the four types of LCR that Vestas focus on?
In general, Vesta focuses on 4 different types of LCR when deciding which market to enter.
WhAT IS THE 4?
- Requirement of local production
What are the pros of producing locally from the governments perspective?
Having domestic production increases the use of local labor and materials which at the end leads to a growth in the government’s welfare.
Local Content Requirements (LCRs) are a type of localization measure that governments can adopt to stimulate their local economies and industries. While these measures have the potential to create benefits for domestic suppliers by increasing demand for their products
LCRs are mostly identified as a form of protectionism that aims to shield local industries from foreign competition.
What can consequences be for not adhering to LCR?
penalties come in place when regulations are not fulfilled.
Penalties can be extreme, such as, cancellation of the whole project.
EX., Vestas would be unable to deliver the wind turbines to their customers and suffer a great financial loss.
Why does LCR pose a challenge for Vestas?
It affects Vestas since they have already created a global network of suppliers that ensure that they have the highest quality and the lowest price possible, but by having to invest in the specific country they want to sell in is affecting this already streamlining model.
What are some LCR implications for MNEs?
LCR implications for MNEs:
The implications of LCRs for MNEs can be significant, as they can increase costs and limit flexibility and access to markets and force MNEs to face reorganizational problems.
For instance, MNEs may be required to reorganize their supply chains, which can increase costs, reduce profitability, and limit their ability to compete globally.
They may also be forced to source products locally at a higher price, rather than importing them from more competitive suppliers.
Moreover, LCRs can create barriers to entry for firms, by making it more difficult to establish a presence in the local market due to the increased costs and complexity associated with meeting local content requirements.
This can limit competition and innovation in the market.
Finally, LCRs can also create trade tensions between countries, particularly if they are perceived as being protectionist. This can ultimately harm the economic relationships between
Name some positive effects of LCR
Positive effects of LCR:
lowering transportation costs, due to the requirements of having local production and as an example.
The possibility of using local knowledge through having local employees can be exploited to get a better understanding of local markets.
If MNEs comply with LCRs, they can potentially increase their market share and reduce trade barriers, which can increase profitability and competitiveness.
