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International business
Q-1. Despite its advantages, FDI has been described as an expensive and risky international growth strategy. Other things being equal, why is FDI expensive and risky when compared to licensing and exporting?
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Answer #1

In export, a firm just sells goods and services to an importer in a foreign country. Therefore, in export, a firm does not need to manage any business in a foreign country.

In licensing, a firm allows another firm in a foreign country to manufacture, distribute and sells the goods or services of the firms. Therefore, in-licensing also a firm does not need to manage a business abroad.

In FDI a firm assumes ownership control in business interest in a firm abroad. Since FDI results in ownership control of the firm in a foreign location, the firm investing in FDI needs to manage the firm in a foreign country. Managing a firm in a foreign country involves various risks such as political risks, currency risks, economic risks, market risks, etc.

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