Disregard the first picture.

4. Benefits of FDI to a host country arise from resource-transfer effects, employment effects, and balance-of-payments effects. The costs of FDI to a host country include adverse effects on competition and balance of payments, and a perceived loss of national sovereignty. The benefits of FDI to the home (source) country include improvement in the balance of payments as a result of the inward flow of foreign earnings, positive employment effects when the foreign subsidiary creates demand for home country exports, and benefits from a reverse resource-transfer effect. A reverse resource-transfer effect arises when the foreign subsidiary learns valuable skills abroad that can be transferred back to the home country. The costs of FDI to the home country include adverse balance- of-payments effects that arise from the initial capital outflow and from the export substitution effects of FDI. Costs also arise when FDI exports jobs abroad. 4. You are the international manager of a Canadian business that has just developed a revolutionary new software application that can perform the same functions as a Microsoft application but costs only half as much to manufacture. Your CEO has asked you to formulate a recommendation for how to expand into Western Europe. Your options are (a) to export from Canada; (b) to license a European firm to manufacture and market the computer in Europe; or (c) to set up a wholly owned subsidiary in Europe. Evaluate the pros and cons of each alternative and suggest a course of action to your CEO