Final answer:
The advantages of licensing in foreign market entry are significant in situations with scarce capital, strict import rules, sensitivity to foreign ownership, or the need to protect intellectual property. It is an effective strategy that aligns with the mentioned conditions and helps to overcome barriers to entry.
Step-by-step explanation:
In the context of foreign market entry strategies, the advantages of licensing are most apparent when capital is scarce, import restrictions forbid other means of entry, a country is sensitive to foreign ownership, or patents and trademarks must be protected against cancellation for nonuse. Licensing allows a company to grant the rights to produce its product to another company within the foreign market. This strategy can circumvent capital requirements, navigate import restrictions, preserve patents and trademarks, and accommodate sensitivities to foreign ownership.
Now, let's classify the following situations:
- A patented invention - Government-enforced barrier to entry.
- A popular but easily copied restaurant recipe - Barrier to entry that is not government-enforced.
- An industry where economies of scale are very small compared to the size of demand in the market - Does not involve a barrier to entry.
- A well-established reputation for slashing prices in response to new entry - Barrier to entry that is not government-enforced (predatory pricing).
- A well-respected brand name that has been carefully built up over many years - Barrier to entry that is not government-enforced (brand loyalty).