Question

What factors influence a firm’s choice between (i) home production & exporting, (ii) direct foreign investment to set up a factory near customers, and (iii) licencing a foreign producer.

Answer 1

1. There are some major factors which influence the internationalizations of a firm, there for, home production and exporting if it's production is from a developing country and entering to a lower quality demanding market then the process is beneficial for the firm, because most of the countries requires quality and sometimes we are have to import and produce.
And my entering a lower quality demanding market, the firm can gradually increase their quality of production

2. There are also some factors influence the direct foreign investment such as (wage,tax-rate, political stability, transportation and infrastructure)
Wage: influence the direct investment, because a country with lower wage is very much better for reducing cost of production.
Tax rate : The investors also chooses a country with lowest tax rate.
Transportation & infrastructure: The investors also looks at the country before investing that the country holds the appropriate transportation facilities and infrastructure facilities required for the production process.
Political stability: Countries with an uncertain political situation is a drawback for the foreign investors. Which can cause major crisis in economic system of the country.

3. Licensing (foreign producer) is a business agreement by two different countries , where one company receives the rights or resources of the other company like ( patent, copyright, technology,etc)
Before entering a licensing with a company in another country the firm have to look after some important factors such as political stability of the country that they are entering, wage system, transportation and infrastructure, future economic growth, tax rate, etc. These factors should be properly analyzed before entering a licensing with a company/producer in another country.