Globalization Essay Example | Topics and Well Written Essays - 2000 words - 3

Globalization - Essay Example First, a firm may choose FDI rather than exporting when it wants to regulate cost uncertainty, as well as demand uncertainty. Through FDI, the international firm will meet the shifting local demand more quickly than when the firm uses exporting; this will improve the profits of the firm. Therefore, the firm may decide to internationalize business activities through FDI rather than exporting when the cost uncertainty is lower than the demand uncertainty. Moreover, firms that engage in the production of products that may be less similar may choose foreign direct investment as an entry strategy in foreign markets than the use of exporting. Another circumstance that may prompt a firm to use foreign direct investment rather than the other methods like exporting includes government policies. These may entail policies that discourage exports as a way of conducting international business. For example, nontariff as well as tariff barriers may discourage firms from choosing to export as an entry mode in international business. High taxes that may be levied on the exports may compromise the profits of the business enterprise. As a result, firms may choose to make direct investments in the foreign markets with an aim of maintaining productivity and profits. Tariffs may act as barriers to international trade, especially when firms depend on exports as a mode of entry in international markets. Another circumstance that may make a firm make a direct investment in a foreign country through FDI includes marketing concerns. This may entail the distribution, logistics, image of the firm, and responsiveness to the customers' needs. Firms that require quick and immediate feedback from the customers tend to choose FDI as the mode of entry in international markets (Markusen 2004, p. 287). Through FDI, the firm takes advantage of its presence in a foreign market to engage in widespread marketing of the products, which it produces. Thus, Foreign Direct Investment could be more favorable than exporting, licensing, and franchising in a situation where the firm wants to engage in enormous marketing of its products (Moran 2002, p. 100). Firms may also decide to internationalize their business activities through foreign direct investment where logistical considerations play an essential role in the activities of the firm. An example includes the costs attributed to internationalization th rough exporting (William 2004, p. 246). While firms decide to internationalize through exporting, some costs such as packaging, warehousing, distribution, and transporting costs will be incurred. Thus, in circumstances where firms want to avoid these costs, it will be more