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An Australian business has opened a factory in China - HSC - SSCE Business Studies - Question 3 - 2011 - Paper 1
Question 3
An Australian business has opened a factory in China. What method of international expansion is this? (A) Export (B) Licensing (C) Management contract (D) Forei... show full transcript
Worked Solution & Example Answer:An Australian business has opened a factory in China - HSC - SSCE Business Studies - Question 3 - 2011 - Paper 1
Step 1
What method of international expansion is this?
Answer
The scenario describes an Australian business opening a factory in China, which is an example of establishing a physical presence overseas. This method of international expansion is known as Foreign Direct Investment (FDI).
Explanation:
- Foreign Direct Investment involves investing directly in new facilities or business operations in another country, which includes the establishment of factories or offices.
- In contrast, Export refers to selling goods produced in one country to another, while Licensing allows another party to produce or sell products using the firm's intellectual property. Management contracts involve offering expertise or management oversight without equity investment.
Given these definitions, the correct answer is (D) Foreign direct investment.