Any method
that requires a special investment in foreign operations is labelled as a foreign direct purchase. International trade and licensing is not regarded as FDI because it doesn`t call for direct investment in currency operations. Franchising and joint projects involve some investment but into a limited degree.
Acquisitions and new subsidiaries
require large investment therefore represent a considerable proportion of FDI. Many International Companies use a variety of methods to increase overseas business. For example the progression of Nike began in 1962 whenever a business student at Stanford`s enterprise school, wrote a papers on how a OUGH. S. firm could use Japanese technology to break the German dominance with the athletic shoe industry in the united states.
After graduation, he visited
the Unitsuka Tiger casino shoe company in Japan. He made a licensing agreement with that company to create a shoe that he sold in the united states under name Blue Ribbon Sports (BRS). In 1972, this individual exported his shoes to Canada. In 1974, this individual expanded his operations in Australia. In 1977, the business licensed factories in Korea and Taiwan to create athletic shoes and and then sold them in Parts of asia.
In 1978, BRS turned Nike, Inc.,and began to export
to Europe and Sth America. As a end result of its exporting as well as its direct foreign expenditure of money, Nike's international sales arrived at $1billion by 1997 and much more than $7 billion through 2010.
A decision of precisely why companies undertake FDI compared to other modes of entry is usually explained by OLI paradigm. The paradigm tries to help explain why companies choose FDI compared to other modes of entry
such as licensing, mutual ventures, franchising.