FDI Mode of Internationalization Essay Example | Topics and Well Written Essays - 2000 words

FDI Mode of Internationalization - Essay Example Tutor Signature: Date: Table of Contents Table of Contents 3 Introduction 4 Foreign market entry modes 4 FDI (Foreign Direct Investment) 4 Exporting 4 Licensing or Franchising 5 Circumstances under which FDI is beneficial over exporting 5 Circumstances under which FDI is beneficial over licensing or franchising 6 Conclusion 7 Introduction Organizations or firms that operate in the international market place are required to make decisions that are related to the mode of entry in the international market place or foreign market. The following paper includes the discussion about the factors and issues that are faced for making the choice of the mode of international market entry. The organizations needs to analyze the potential factors and issues that impact the organization by selecting a particular mode of going international. Mainly the mode of going international includes the FDI (Foreign Direct Investments), franchising or licensing and exporting. The paper includes the factors or circumstances under which the organizations must prefer to internationalize via foreign direct investment rather than the other modes of internationalizations. Foreign market entry modes The modes to enter the foreign market differs with the degree of risk they present, the level of control and the commitment of resources the mode of internationalization require and also the return on investment they provide. There are different modes through which organizations can internationalize their business this mainly includes FDI, franchising or licensing and exporting (Stiglitz 2006). Each mode has certain advantages and disadvantages, which needs to be evaluated before selecting a mode of internationalization for business. The whole entry mode is divided into equity modes and non equity modes. The equity modes include FDI’S, joint ventures etc, while the non equity modes include exporting, franchising, or licensing etc (Bakan 2007). FDI (Foreign Direct Investment) In simple terms F DI can be defined as the investment process where residents of one nation or country acquire ownership of assets of the firm in some other country or nation for the purpose of controlling interest in the production, distribution and other activities. It can also be said to be as the acquisition of lasting interest in a firm operating in an economy other than the home economy or of the investor in order to have a hold in the management of the enterprise (Ravenhill 2008). The major factors explained in the definitions above include controlling interest. So the main factor that is included for the use of the FDI as a source of international investment over other modes of internationalization is the element of control on the policies and decisions of management (Zekiri and Angelova 2011). Exporting Exporting in simple terms can be said to be as the process of selling of goods and products or services produced in domestic country to other country. Exporting is done in the form of direct and indirect exporting. In indirect exporting the products are sold in the original or modified form from one nation to another, while in direct exporting includes selling of products and services directly through the use of direct distribution channels (Mosa 2012). Licensing or Franchising Under the franchising internationalization mode the organizations sells limited rights to the franchisees to utilize the brand name of the organization in return for a lump sum amount of payment and also with the