Executives at Energex Enterprises are trying to determine whether it would be better to own and operate a factory overseas or to contract with a foreign firm to do this through a licensing agreement. Which theory would most likely help the Energex executives make this decision?
A) ownership advantage theory
B) internalization theory
C) eclectic theory
D) relative factor endowments

Question

Quizplus · Accepted Answer

Internalization theory helps explain why firms prefer to own and operate their own businesses in foreign countries rather than licensing to foreign firms. It suggests that firms will internalize their operations if the costs of negotiating, monitoring, and enforcing a contract with a foreign firm are higher than the costs of managing the foreign business themselves.

Executives at Energex Enterprises Are Trying to Determine Whether It