Question

question 9 5 pts which of the following describes a direct investment?
○ when firms develop new facilities from the ground up in foreign countries
○ when two firms jointly pursue a specific opportunity without actually merging their businesses
○ when a firm expands by offering businesses in other countries the right to produce and market its products according to specific operating requirements
○ when two or more companies join forces by sharing resources, risks, and profits, but not actually merging companies

Explanation:

To determine the correct option for direct investment, we analyze each choice:

• The first option: Developing new facilities from the ground up in foreign countries is a form of direct investment (greenfield investment), where a firm directly establishes operations abroad.
• The second option: Jointly pursuing an opportunity without merging is a strategic alliance, not direct investment.
• The third option: Offering the right to produce/market products (franchising or licensing) is indirect, not direct investment.
• The fourth option: Sharing resources/risks/profits without merging is a joint venture (a type of direct investment, but the first option is a more classic direct investment example of greenfield investment. However, among the options, the first one clearly describes direct investment as building new facilities in a foreign country, which is a direct investment method).

Answer:

A. When firms develop new facilities from the ground up in foreign countries