Some of the company’s sales executives think that the company should s

QUESTION

Some of the company’s sales executives think that the company should stick to exporting its products internationally instead of using FDI, which is much more costly.

The CEO, however, is insisting that FDI is worthwhile due to its potentially high rate of return over time. Which of the following, if true, strengthens the CEO’s argument?
A) FDI is something that only the largest companies can engage in.
B) FDI requires a large amount of capital investment.
C) FDI can result in inexpensive production methods.
D) FDI is profitable only in countries with a high economic growth rate.
E) FDI requires a short-term period of significant adjustment to local conditions.

ANSWER

Answer: C
Explanation: C) If FDI results in inexpensive production methods, it has the potential to save a lot of money over time compared to exporting goods, and thus provide a high rate of return over time. Choice A describes a constraint relating to the types of companies that can invest in FDI. Even if Cyclane is a large company, however, Choice A does not strengthen the case that Cyclane should commit to FDI instead of exporting. Choice B: The need for a large capital investment tends to undermine the claim for a high rate of return. Choices D and E describe conditions relating to typical FDIs and do not strengthen the case that Cyclane should commit to FDI instead of to exporting.