TWO ASPECTS OF INTERNATIONAL BUSINESS DEVELOPMENT: EXPORTS AND INVESTMENTS

Afirm can choose to develop its business internationally either by exporting or by undertaking foreign direct investment (FDI). These two strategies can be differentiated inter alia by the degree of irrevocable commitment required.

The predictions of theoretical models emphasize a number of key deciding factors for direct investment and exports. While an export strategy allows a firm to save on the fixed costs of setting up a subsidiary abroad, it must then bear the variable costs that arise from transport and customs duties. Conversely, investment is preferred over exporting when fixed setup costs are low, economies of scale are surmountable, the target market is large, the foreign market is remote (or protected by sizeable trade barriers) and/or production costs in the foreign country are relatively advantageous.