A firm will favor foreign direct investment (FDI) over exporting as an entry strategy when:

• A. the firm has no desire to control its foreign operations
• B. the firm wants to avoid the risks associated with operating in a foreign country
• C. exporting allows the firm to fully exploit location-specific advantages
• D. transportation costs or trade barriers make exporting unattractive

Answer: (D)

Verified step by step guidance

1. Understand the context: The problem is about a firm's choice between foreign direct investment (FDI) and exporting as strategies to enter a foreign market.
2. Recall the key factors influencing this choice: Firms consider control over operations, risks of foreign markets, ability to exploit location advantages, and costs related to exporting such as transportation costs and trade barriers.
3. Analyze why a firm would prefer FDI over exporting: FDI involves direct investment and control in the foreign country, which is often chosen when exporting is less attractive due to high transportation costs or trade barriers.
4. Recognize that if transportation costs or trade barriers are high, exporting becomes costly or difficult, making FDI a more favorable option despite its higher initial investment and risk.
5. Conclude that the firm will favor FDI over exporting when exporting is unattractive because of transportation costs or trade barriers, as this allows the firm to maintain control and better exploit foreign market opportunities.