436 INTERNATIONAL FINANCIAL MANAGEMENT
corporations to diversify their investments internationally and achieve reduction in
investment risks. International diversification of investments may also enhance the
value of the firm.
• Transportation cost and proximity to markets: Transportation costs are also an important
consideration in undertaking FDIs. By establishing production facilities close to raw
material sources or distribution centres, the costs of transportation of goods can be
reduced. Companies may undertake FDIs closer to their markets (input markets and
output market) so that they can reduce their transportation costs. MNCs may also
make direct investments in countries that have efficient transportation systems so that
transpor ...