Question

1. What is a common market in regional economic integration?
2. Give one reason why a firm would prefer to expand into new national markets through an FDI rather than through trade?
3. Give one reason why a firm would prefer a greenfield FDI to FDI through a foreign acquisition?

Answer 1

Ans:

Common market in regional economic integration:

A common market is a formal agreement in which a group is formed among several countries in which each member country adopts a common external tariff. In a common market, Countries alow free trade and free movement of capital and labor among the members in the group. This trade agreement is aimed at providing improved economic benefits to all members of the common market. Common market allows free movement of people, goods, services, and capital, Efficiency in production, etc.

one reason why a firm would prefer to expand into new national markets through an FDI rather than through trade:

Firms prefer to expand into new national market through FDI to take advantage of proximity to raw materials rather than transport them around the world. Avoid tariff barriers and other non-tariff barriers to trade. Reduce transport costs. For example, by producing cars in the UK, Nissan has lower transport costs for selling to the UK market

One reason why a firm would prefer a greenfield FDI to FDI through a foreign acquisition:

In a greenfield investment, the new company typically adhere regardless of its parent company association. One of the most important reason for greenfield investment is the lack of suitable targets in a foreign country for acquisition. A company may find acquisition targets but see serious difficulties involved in integrating a parent company with a target