Which of the following statements best explains why exporting is considered one of the easiest ways for a firm to enter international markets?

• A. Exporting involves setting up manufacturing plants in foreign countries.
• B. Exporting eliminates all risks associated with international trade.
• C. Exporting requires relatively low investment and allows firms to test foreign markets without establishing a physical presence.
• D. Exporting always guarantees higher profits than domestic sales due to lower transportation costs.

Answer: (C)

Verified step by step guidance

1. Understand the concept of exporting in international trade: Exporting refers to selling goods or services produced in one country to customers in another country without necessarily having a physical presence there.
2. Analyze the investment requirements: Exporting typically requires less upfront investment compared to other entry modes like foreign direct investment or setting up manufacturing plants abroad, because firms can use existing production facilities and distribution channels.
3. Consider the risk factors: Exporting allows firms to test foreign markets with relatively low risk since they do not need to commit large resources or establish operations in the foreign country initially.
4. Evaluate the incorrect options: Setting up manufacturing plants involves high investment, exporting does not eliminate all risks (such as political or currency risks), and exporting does not always guarantee higher profits due to transportation and other costs.
5. Conclude that the best explanation is that exporting requires relatively low investment and allows firms to test foreign markets without establishing a physical presence, making it one of the easiest ways to enter international markets.