Homework Question on Foreign Direct Investment
- Compare and contrast Foreign Direct Investment (FDI) and other forms of International Business.
- Please check grammar and spelling. Do not omit words from sentences!! Writers have done so in the past because of their hastiness. Do NOT DO this!!
- Content of essay must be written in a clear, logical, and coherent manner.
- Please use credible/scholarly sources. Do not forget in-text citation as well as a reference page. VERY IMPORTANT.
- Must use APA format.
- Please address all aforementioned questions or requirements in paper.
Homework Answer on Foreign Direct Investment
This paper compares and contrasts foreign direct investment (FDI) to other forms of international businesses that include exporting, franchising, licensing, turnkey operation, and contract arrangement. FDI refers to the acquisition of a lasting management interest in a company operating in a country outside that of the investor. It involves exporting management, capital, technology, and important material imports.
In exchange, the investors receive profits, license fees, and transfer payments for material inputs. The main benefits of FDI include profits, control over the business and there is a possibility of tax avoidance using transfer pricing. However, it is costly in terms of operational commitment and capital required (Harris, Kuivalainen & Stoyanova, 2012).
Unlike FDI, exporting deals with physical products. It requires no overseas investment and the only change to domestic operations is in terms of foreign documentation and marketing. On the negative side, it is prone to trade barriers, logistical problems, and is not appropriate for services. Under licensing, what is sold is technical information, use rights and/or assistance. Unlike FDI, licensing requires less time and extra capital investment and it increases a business` return in creativity and technology. Its main disadvantages include problems in controlling quality and bar the licensor from exploiting the assets in the foreign market.