Question

What is the optimal mode of entry in the situation where a firm wants to reduce its risk through a sharing of costs?

a. Strategic alliance
b. Exporting
c. New wholly owned subsidiary
d. Acquisition
e. Licensing

Answer 1

a. Strategic alliance

Step-by-step explanation:

A strategic alliance is when two or more companies come together to achieve a certain objective. The companies that come together still remain independent.

Some of the reasons for a strategic alliances include-

1. Penetrating a new market.

2. Increasing market share

3. Increasing economies of scale.

Strategic alliances reduces cost because the number of companies that would bear the cost of a project has increased.

A subsidiary is a company that is wholly owned by another company known as the parent company. A subsidiary doesn't lead to cost reduction.

In acquisition, a company gains control by purchasing more than 50% of a company's shares. It doesn't lead to cost reduction.

Export is selling goods and services abroad.

Licensing is giving another company the permission to make use of its property in its production process.

Answer 2

The correct answer is option B

B. Exporting

Step-by-step explanation:

When looking at "Deciding on the international entry mode" section (8-3). The classification from low to high risk is; indirect exporting, direct exporting, licensing, franchising, joint ventures, branch offices, wholly owned subsidiaries.