Answer to Question 1
1. Control-Many companies investing abroad are greatly concerned with controlling the activities that occur in the local market. Perhaps the company wants to be certain that its product is being marketed in the same way in the local market as it is at home. Or maybe it wants to ensure that the selling price remains the same in both markets. Some companies try to maintain ownership of a large portion of the local operation, say, even up to 100 percent, in the belief that greater ownership gives them greater control. Yet for a variety of reasons, even complete ownership does not guarantee control.
2. Purchase-or-Build Decision-Another important matter for managers is whether to purchase an existing business or to build a subsidiary abroad from the ground upcalled a greenfield investment. An acquisition generally provides the investor with an existing plant, equipment, and personnel. The acquiring firm may also benefit from the goodwill the existing company has built up over the years and, perhaps, brand recognition of the existing firm. The purchase of an existing business may also allow for alternative methods of financing the purchase, such as an exchange of stock ownership between the companies. Factors that can reduce the appeal of purchasing existing facilities include obsolete equipment, poor relations with workers, and an unsuitable location.
3. Production Costs-Many factors contribute to production costs in every national market. Labor regulations can add significantly to the overall cost of production. Companies may be required to provide benefits packages for their employees that are over and above hourly wages. More time than was planned for might be required to train workers adequately to bring productivity up to an acceptable standard. Although the cost of land and the tax rate on profits can be lower in the local market (or purposely lowered to attract multinationals), it cannot be assumed that they will remain constant.
4. Customer Knowledge-The behavior of buyers is frequently an important issue in the decision of whether to undertake foreign direct investment. A local presence can help companies gain valuable knowledge about customers that could not be obtained from the home market. For example, when customer preferences for a product differ a great deal from country to country, a local presence might help companies to better understand such preferences and tailor their products accordingly.
5. Following Clients-Firms commonly engage in foreign direct investment when the firms they supply have already invested abroad. This practice of following clients is common in industries in which producers source component parts from suppliers with whom they have close working relationships. The practice tends to result in companies clustering within close geographic proximity to each other because they supply each other's inputs.
6. Following Rivals-FDI decisions frequently resemble a follow the leader scenario in industries having a limited number of large firms. In other words, many of these firms believe that choosing not to make a move parallel to that of the first mover might result in being shut out of a potentially lucrative market.
Answer to Question 2
Saved me massive time.
Answer to Question 3
B
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