1. What is a Greenfield investment? How does it compare to an acquisition? Which form of FDI is a firm more likely choose? Explain your answer.

FDI can take the form of a Greenfield investment in a new facility or an acquisition of or a merger with an existing local firm. Research shows that most FDI takes the form of mergers and acquisitions rather than Greenfield investment. Mergers and acquisitions are more popular for three reasons. First, mergers and acquisitions are quicker to execute than Greenfield

investments. Second, foreign firms are acquired because those firms have valuable strategic assets. Third, firms make acquisitions because they believe they can increase the efficiency of the acquired firm by transferring capital, technology or management skills.

2. Consider why firms selling products with low value-to-weight ratios choose FDI over exporting.

Products with low value-to-weight ratios such as soft drinks or cement are frequently produced in the market where they are consumed. When transportation costs are added to production costs, it becomes unprofitable to shift such products over a long distance. For firms that can produce low value-to-weight products at almost any location the attractiveness of exporting decreases and FDI or licensing becomes more appealing.

3. Compare and contrast the advantages of foreign direct investment over exporting and licensing.

A firm will favor foreign direct investment over exporting as an entry strategy when

transportation costs or trade barriers make exporting unattractive. Furthermore, the firm will favor foreign direct investment over licensing (or franchising) when it wishes to maintain control over its technological know-how or over its operations and business strategy or when the firm's capabilities are simply not amenable to licensing, as may often be the case.

4. Describe the situations when licensing is not a good option for a firm.

Licensing is not a good option in three situations. First, licensing is hazardous in high-tech industries where protecting firm-specific expertise is very important. Second, licensing is not

attractive in global oligopolies where tight control is necessary so that firms have the ability to launch coordinated attacks against global competitors.

Finally, in industries where intense cost pressures require that MNEs maintain tight control over foreign operations, licensing is not the best option.

6. Compare and contrast a free trade area and a common market. Provide an example of each type of integration.

All barriers to the trade of goods and services among member countries are removed in a free trade area, however, each country maintains the right to establish its own policies toward nonmembers. In contrast, a common market eliminates barriers to trade between member countries, but also includes a common external trade policy toward nonmembers. The factors of production are also allowed to move freely between member countries. In addition, in a common market, labor and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital between member nations. The European Free Trade Area is an example of a free trade area. For years, the European Union functioned as a common market, although it has now moved beyond this stage

7. Describe the disadvantages of economic integration for international businesses.How can firms protect themselves from these threats?

Economic integration presents a number of difficulties for companies. Certainly, the morecompetitive business environment that will result from integration would be considered adisadvantage. To survive, firms will have to capitalize on the opportunities presented by thecreation of an integrated marketplace and rationalize their production and reduce their costs.Companies that are outside of trading areas such as the EU may find themselves facing a tradefortress with high barriers to imports and investment. Consequently, firms may find that to protect themselves, they will need to establish operations "on the inside." Finally, firms mayfind their strategic choice limited by restrictions on proposed acquisitions and mergers. Firmsmay find that they must make significant concessions in order for their proposed plans tomove ahead

5. discuss reason for increase in regional economic integration

In recent years, there has been a strong move toward regional economic integration or agreements made by groups of countries in geographic regions to reduce and ultimatelyremove, tariff and nontariff barriers to the free flow of goods, services and factors of production between each other. In fact, by 2007, nearly all the WTO's members had notifiedthe organization of participation in one or more regional trade agreements. By entering intoregional agreements, groups of countries are hoping to reduce trade barriers more rapidly thancan be achieved under the auspices of the WTO