Why FDI? Companies may choose foreign direct investment over exporting or licens

Q: Why FDI? Companies may choose foreign direct investment over exporting or licens

Entry Strategy Benefits Drawbacks Exporting Location Economies High Transportation cost Licensing Low development costs and risks Lose control over manufacturing FDI Tight Control High set up costs Entry Strategy Benefits Drawbacks Exporting Location Economies High Transportation cost Licensing Low development costs and risks Lose control over manufacturing FDI Tight Control High set up costs

ID: 360427 • Letter: W

Question

Why FDI? Companies may choose foreign direct investment over exporting or licensing a product. Exporting involves producing goods at home and then shipping them to another country for sale. Licensing grants a foreign entity (known as the licensee) the right to produce and sell a firm's products in return for a royalty fee on each unit sold. Foreign direct investment can be costly and risky. A company must assess the advantages and limitations of these three choices to determine what is the best decision for the business. Roll over the items on the left to read a description. Identify the strategy and whether it is a benefit or drawback, and then drag each item into the correct location within the chart. High setup costs Lose control over manufacturing Entry Strategy Benefits Drawbacks Exporting High transportation costs Location economies Licensing Low development cost risks Tight control FDI

Explanation / Answer

Entry Strategy

Benefits

Drawbacks

Exporting

Location Economies

High Transportation cost

Licensing

Low development costs and risks

Lose control over manufacturing

FDI

Tight Control

High set up costs