Why would a company choose to use foreign direct investment as a way to enter a foreign market instead of other, less risky options? What are the disadvantages of foreign direct investment? What are the types of foreign direct investment?

Question

What will be an ideal response?

Answer 1

Essentially, the firm engaging in foreign direct investment is interested in greater control over its business activities. Internal-coordination or administrative advantages make it desirable for a firm to produce the good or service rather than contracting with another firm to produce or distribute it. The types of foreign direct investment are: joint ventures, strategic alliances, greenfield ventures, and acquisitions. All require more up-front investment than other types of entry to the international market. Acquisitions have the added difficulty of performing adequate due diligence in a foreign environment.