Question

Bubble Gums Inc. of Chicago, Illinois, sold the rights to sell its patented toys outside the United States to an Australian company, Phoenix Junior Inc. In return, Phoenix Junior Inc. has to pay 40 percent of its total sales of the patented toys as royalties to Bubble Gums Inc. Which of the following approaches to entering international markets is Bubble Gums Inc. using in this scenario?

a)licensing
b)direct investment
c) management contracting
d) franchising
e) exporting

Answer 1

Bubble Gums Inc. is using the licensing approach to enter international markets by selling its patented toys rights to an Australian company in exchange for royalties.

Step-by-step explanation:

The approach used by Bubble Gums Inc. in this scenario is licensing. Licensing is a contractual arrangement where one party (the licensor) grants another party (the licensee) the rights to use its intellectual property in exchange for royalties or fees.

In this case, Bubble Gums Inc. sold the rights to sell its patented toys outside the United States to Phoenix Junior Inc., an Australian company. Phoenix Junior Inc. is now paying 40 percent of its total sales of the patented toys as royalties to Bubble Gums Inc.

This type of arrangement allows Bubble Gums Inc. to expand its business internationally without having to directly invest in another country or manage the operations of the licensee, which are characteristics of other approaches such as direct investment and management contracting.