Exporting-licensing and foreign direct investment

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Reference no: EM131780958

A firm has three basic choices if it wants to sell its products in a foreign market – exporting, licensing, and foreign direct investment (FDI). The choice of the best option depends on characteristics of the product, the processes used to make these products, the control a firm needs to exercise over operations, and how the know-how of the firm might be protected. The best option is a strategic choice the international business manager must make, considering the interplay among these factors.

Internalization theories explore the limitations of exporting and licensing from both explanatory and business perspectives. These theories identify with some precision how the relative profitability of foreign direct investment, exporting, and licensing vary with circumstances. Other theories help explain the direction of FDI. The internalization theories help explain why firms prefer FDI to licensing or exporting.

Read the case below and answer the question that follows.

Your firm manufactures a range of household goods and appliances. Over the years, your firm has developed proprietary processes, using environmentally-friendly chemicals that have given your firm a leadership position for "green" customers. Your products are competitively priced. The appliances and products you manufacture tend to be bulky and a bit heavy for their size.

You are interested in exploring international business options. You need to decide whether exporting, licensing, or foreign direct investment strategies would be the most appropriate for your firm. You want to maintain your competitive advantages, so you consider different strategic options by answering the question below.

1. If your prprietary kno-how of "green" processes is difficult to transfer to other firms, the most effective approach would be

a licensing

b exporting

c pre-gaming

d fdi

2. If your household goods can be efficiently produced through economies of scale, it would be a good idea to use a(n) ______ strategy

a licensing

b exporting

c pre-gaming

d fdi

3. If the firm is facing the threat of trade barriers such as high import tariffs or quotas and the firm has proprietary technology, the firm should consider

a licensing

b exporting

c pre-gaming

d fdi

4. If a firm's know-how, skills, and capabilities can be protected by contract, and if tight control over foreign operations is not vital to remain competitive, and there are reasons to believe that additional costs through transportation or tariffs would be high, the most effective approach would be___________.

a licensing

b exporting

c pre-gaming

d fdi

Reference no: EM131780958

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