The best means of using direct foreign investment (DFI) to fully benefit from cheap foreign factors of production is probably to:
A) acquire a competitor that has controlled its local market.
B) establish a subsidiary in a new market that can sell products produced elsewhere; this allows for increased production and possibly greater production efficiency.
C) establish a subsidiary in a market that has relatively low costs of labor and land; sell the finished product to countries where the cost of production is higher.
D) establish a subsidiary in a market in which raw materials are cheap and accessible; sell the finished product to countries in which the raw materials are more expensive.

Question

Quizplus · Accepted Answer

By establishing a subsidiary in a market with low costs of labor and land and selling the finished product to countries with higher production costs, the company can take advantage of the cheap foreign factors of production while still profiting from selling the product at a higher price in countries with higher production costs. This allows for increased production and potentially greater production efficiency, as well as potential cost savings. Acquiring a competitor (A) may not necessarily allow for the same advantages and could come with additional costs and complications. Establishing a subsidiary in a new market solely to sell products produced elsewhere (B) may not fully capitalize on the benefits of cheap foreign factors of production. Establishing a subsidiary in a market with cheap and accessible raw materials and selling the finished product to countries with more expensive raw materials (D) may also not fully capitalize on the benefits of cheap foreign factors of production, as labor and land costs may still be higher in the market with cheap raw materials.

The Best Means of Using Direct Foreign Investment (DFI) to Fully