Question

What are the factors considered by companies to select between the foreign direct investment strategy and exports to enter foreign markets?. Minimum 3 paragraphs.

Answer 1

Direct investors prefer to find a variety of factors that contribute to how they will function in a foreign country:

Rules and regulations concerning the entry of foreign investors and their operations
Treatment standards for foreign affiliates, compared to host country "nationals"
The functioning of local markets and their effectiveness
Discussion on trade and privatization
Measures to facilitate business, such as investment promotion, incentives, amenities improvements and other measures to reduce the cost of doing business. Some countries , for example, establish special export processing zones that may be free of customs or duties, or offer special tax breaks for new investors

Main theories suggested to explain exporters' higher profitability: exporting needs extra capital in terms of shipping, distribution and marketing costs, international managerial expertise staff and export product modifications – imposes a barrier that only more efficient firms can bear – firms may improve productivity through collecting information and technological spillovers from particulate matter.

Many governments ban or restrict imports of products manufactured in other countries, however a company may establish a manufacturing site and sell locally on the international market. Development of products in the target market prevents tariffs on imports and other taxes and the need for import licences. Organizations in the target market may acquire the services of professional workers or gain information retained by people in that sector. Companies in certain countries can benefit from lower costs, such as cheaper labour. Enterprises can be more competitive.