Question

What is licensing?

a. Entering foreign markets by developing an agreement with a licensee in the foreign market.

b. Entering a foreign market by developing foreign-based assembly or manufacturing facilities.

c. A joint venture in which a company contracts with manufacturers in a foreign market to produce its product or provide its service.

d. A joint venture in which the domestic firm supplies the management know-how to a foreign company that supplies the capital; the domestic firm exports management services rather than products.

Answer 1

The student's question involves methods of foreign market entry via foreign direct investment, such as establishing manufacturing facilities or forming joint ventures. These require long-term managerial involvement and currency exchange, and are pivotal in global business for expansion and operational efficiency.

Step-by-step explanation:

The student's question pertains to two methods of entering a foreign market: establishing foreign-based assembly or manufacturing facilities and forming a joint venture with a foreign company to combine management know-how and capital. These methods represent types of foreign direct investment (FDI) where a company extends its operations to another country. Unlike portfolio investments, FDI typically involves a more long-term relationship and managerial responsibilities in the foreign entity.

One example is the global assembly lines, such as those used by Apple, which involve designing products in one country, sourcing components from various nations, and assembling them in another. This approach to FDI allows for efficiency and cost-effectiveness in production. In contrast, a joint venture might involve a domestic firm using its expertise to manage an overseas entity in partnership with a local company contributing the necessary capital. This type of investment creates synergies between domestic and foreign firms, being beneficial for both by sharing risks and rewards.

Economic infrastructures are vital for these ventures to succeed. The construction of roads, schools, communication facilities, ports, and warehouses requires a significant level of saving or external funding. Engaging in international markets also involves currency exchange, the supply and demand of which is essential for companies like InBev, which needed to convert euros to U.S. dollars to purchase Anheuser-Busch. FDI, whether through creating manufacturing facilities or joint ventures, remains an intricate part of global business strategy, especially for companies looking to expand their reach and tap into new markets.