Question

1. Explain the idea of a turnkey project. Why should a firm use this arrangement to expand internationally? In what industries are turnkey arrangements most common?

2. Why should a firm be cautious about entering a licensing agreement?

3. Compare and contrast licensing agreements and franchising agreements.

4 What is a joint venture? What type of joint venture is most common? Provide an example of a joint venture.

Answer 1

TURNKEY PROJECT

Turnkey projects are the the contracts where firm (manufacturing/business/service) agrees to fully design, construct and provide required equipments and then turn the project to the buyer/ purchaser when the project is ready to be operated.

This arrangement provides ways to earn more economic returns from the asset and the contractor will have a fixed price. Turnkey projects helps the firm to reduce and eliminate the unnecessary and extra expenses. Thus turnkey project is considered as one of the mode to enter international markets and the firm can use turnkey projects to expand internationally.

LICENCING

Licencing is an agreement where the licensor will grant the rights to intangible property to the other party know as licensee for a specified period of time in return for royalty payments.

In licencing, the firm has to be cautious on 3 fronts.

1) if licencing is done by the firm for proprietary know how to other company, then there is risk to the firm of losing control over this knowledge.

2) licencing is not considered as an effective way to realize experience curve and locate economies by manufacturing a product.

3) competing in the international market requires a firm to coordinate with its strategic moves across the different countries.

LICENCING AND FRANCHISING

Licencing - it is an agreement where the licensor will grant the rights to the intangible property to the other party know as the licencee for a specified period of time in return for the royalty payments.

The parties involved in the licencing agreement are called as "licensor" and "licensee".

Franchising - it is an agreement where one party (franchisor) will grant the right to the other party (franchisee) to develop, to establish and to duplicate the operations of the business of the franchisor.

The parties involved in the franchising agreement are called as "franchisor" and "franchisee".

JOINT VENTURE

Joint venture is a type of business agreement in which two parties or more than two parties join together and both parties will agree to pool their business resources for a specific purpose of carrying out a specific task.

The common type of joint ventures are business partnerships, limited cooperation, separate joint venture business.

Example - company A has got all the required material resources to carry out business. Company B has rich with the capital resource. Thus Company A and company B join and combine their resources to carry out the business together in order to make profits.