Which of the following is a reason firms may prefer FDI over licensing?

Which of the following is a reason firms may prefer FDI over licensing?

• A. Lower market entry barriers
• B. Greater direct management control
• C. Access to broader network connections
• D. Enhanced local opportunities

Answer: (B)

Firms often prefer foreign direct investment (FDI) over licensing because it allows for greater direct management control of operations. When a firm engages in FDI, it establishes a physical presence in a foreign market, enabling it to make strategic decisions on-site, oversee operations, and ensure the implementation of its standards and practices. This level of control can lead to improved quality management, consistency in product delivery, and the ability to respond quickly to market changes. In contrast, licensing arrangements typically involve granting another company the right to use certain assets, such as intellectual property, which often results in less oversight and control over how those assets are utilized. This can potentially lead to inconsistency in product quality and brand representation, which may negatively impact the overall brand reputation. Thus, the ability to directly manage and control operations is a significant advantage of FDI that many firms prioritize when entering international markets.

Firms often prefer foreign direct investment (FDI) over licensing because it allows for greater direct management control of operations. When a firm engages in FDI, it establishes a physical presence in a foreign market, enabling it to make strategic decisions on-site, oversee operations, and ensure the implementation of its standards and practices. This level of control can lead to improved quality management, consistency in product delivery, and the ability to respond quickly to market changes.

In contrast, licensing arrangements typically involve granting another company the right to use certain assets, such as intellectual property, which often results in less oversight and control over how those assets are utilized. This can potentially lead to inconsistency in product quality and brand representation, which may negatively impact the overall brand reputation. Thus, the ability to directly manage and control operations is a significant advantage of FDI that many firms prioritize when entering international markets.