In which one of the following modes of entry into foreign markets risk and profit potential are the highest?

Question

Question

This question was previously asked in

UGC NET Paper 2: Commerce 14 Oct 2022 Shift 1

Answer 1

The correct answer is Direct Investments.

Key PointsForeign Direct Investment

Foreign direct investments (FDIs) are sizeable, long-term investments made into a foreign enterprise by a company or a government.
Investors in foreign direct investment (FDI) frequently hold controlling positions in domestic businesses or joint ventures and actively participate in their management.
The investment could entail purchasing a material supply, growing a business's reach, or establishing a global presence.

Important PointsModes of Entry in Foreign Markets:

Types of Entry	Advantages	Disadvantages
Exporting	Low Risk Quick Entry	Low control, low local knowledge, potential negative environmental impact of transportation
Licensing and Franchising	Fast entry, low cost, low risk	Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be sound.
Partnership and Strategic Alliance	Shared costs reduce investment needed, reduced risk, seen as local entity	Higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures.
Acquisition	Fast entry; known, established operations	High cost, integration issues with home office.
Joint Venture (launch of new wholly owned subsidiary)	Gain local market knowledge; can be seen as insider who employs locals; maximum control.	High cost, high risk due to unknowns, slow entry due to setup time.
Foreign Direct Investments	Directly invest in facilities in a foreign market. It requires lot of capital to cover costs such as premises, staff and technology.	High cost, high risk relatively due to unknowns, slow entry due to setup time