Final answer:
Exporting is preferred in FDI theory as long as the home country has a comparative advantage in production and there are low transportation costs. Factors like trade barriers and intellectual property concerns might make licensing or FDI more attractive. Globalization, trade policies, education, and national interest could influence the appropriateness of these strategies.
Step-by-step explanation:
FDI theory suggests that exporting is preferable to licensing and Foreign Direct Investment (FDI) as long as the home country has comparative advantage in production and there are minimal transportation costs involved in exporting. Exporting allows businesses to leverage their competitive advantages while avoiding the complexities and potential risks associated with licensing and FDI, such as losing control over technology or adhering to foreign operational regulations. To be optimal, a company must be more efficient in production than foreign competitors and it should be economical to ship its goods abroad.
However, certain factors such as high trade barriers, the potential for intellectual property theft, or substantial differences in business practices and cultural barriers may tilt the scale in favor of licensing or FDI. Licensing can be a way to bypass trade barriers by allowing local production without the need for significant investment, while FDI may be driven by the desire to be close to the market, reduce costs, and control operations more directly.
In summary, the decision between exporting, licensing, and FDI involves complex considerations of cost, control, and competitive advantage. The globalization of markets, changes in trade policies, education levels, and public sentiments towards environmental protection or national security can also play crucial roles in shaping international business strategies.