The argument that firms prefer fdi over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the licensing theory. comparative advantage theory. internalization theory. new trade theory. distribution theory.

The argument that firms prefer FDI over licensing to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing constitutes the internalization theory. Internalization is defined as a transaction that is done within a corporation instead an open market. As corporations become multinational internalization applies to the moving of assets between the different countries. During internalization, more multinational businesses come around and produce public goods.