Question

Which mode of entry provides advantages to a multinational firm that can be transferred within the firm at very low cost? a. Indirect exports b. Externalization c. Licensing d. Ownership

Answer 1

The answer to the question is Licensing

In the licensing mode of entry, companies sign contracts with foreign businesses, called "licensees," that allow the foreign companies to legally manufacture and sell the company's products. The foreign companies will either purchase the license outright, pay a regular licensing fee or pay a percentage of their revenue over time in the form of royalties. Often used by manufacturing firms, licensing allows a company to enter a market quickly and inexpensively, but provides little control over the product's foreign marketing and sales.

• Licensing is a business agreement involving two companies: one gives the other special permissions, such as using patents or copyrights, in exchange for payment.
• An international business licensing agreement involves two firms from different countries, with the licensee receiving the rights or resources to manufacture in the foreign country.
• Rights or resources may include patents, copyrights, technology, managerial skills, or other factors necessary to manufacture the good.
• Advantages of expanding internationally using international licensing include: the ability to reach new markets that may be closed by trade restrictions and the ability to expand without too much risk or capital investment.
• Disadvantages include the risk of an incompetent foreign partner firm and lower income compared to other modes of international expansion.