2. Under the premise that foreign markets are risky, companies expand their operations abroad incrementally and cautiously. Setting up a wholly-owned subsidiary is usually the last stage of doing business abroad. A typical internationalization process for a firm producing a standardized product might begin with a licensing agreement: a contractual arrangement in which one firm provides access to some of its patents, trademarks, or technology to another firm in exchange for a fee or royalty. Apart from a licensing agreement, a firm might export via an agent or distributor. This might Great post to read be followed by the direct hiring of a domestic representative or the establishment of a foreign sales subsidiary. The next step might be the establishment of local packaging and/or assembly operations. This is typically followed by foreign direct investment.
3. Firms become multinationals for a number of reasons. Some of these include:
(a) a desire to protect themselves from the risks and uncertainties of the domestic business cycle;
(b) a growing world market for their goods or services;
(c) a response to increased foreign competition;
(d) a desire to reduce costs;
(e) a desire to overcome tariff barriers; and
(f) a desire to take advantage of technological expertise by manufacturing goods directly rather than allowing others to do it under a license agreement.
4. Multinational enterprises are different from companies that confine their activities
