Question

A firm contemplating foreign expansion must make three basic decisions: which markets to enter, when to enter those markets, and on what scale. Once a firm decides to enter a foreign market, the question arises as to the best mode of entry. Firms can use six different modes to enter foreign markets: exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host-country firm, or setting up a new wholly owned subsidiary in the host country. Each entry mode has advantages and disadvantages.

Read each advantage and disadvantage listed below and then match it to corresponding mode.

a. Development cost and operational Strategy
b. Costs, risks, and profits
c. Manufacturing and transportation costs
d. Host country and controls
e. FDI and foreign country
f. Risks and capital investment

1. Exporting
2. Turnkey Contracts
3. Licensing
4. Franchising
5. Joint Ventures
6. Who Ply-own
7. Subsidiaries

Answer 1

Answer:

1. Exporting - c. Manufacturing and transportation costs

2. Turnkey Contracts e. FDI and foreign country

3. Licensing  f. Risk and Capital investment

4. Franchising d. Host country and controls

5. Joint Venture - a. Development cost and Operational Strategy

6. Who Ply-own - Risks and profits

7. Subsidiaries - b. Costs, risks and profits

Explanation:

Exporting is beneficial for a country as it brings money to the country but it has many disadvantages. There is high manufacturing and transportation cost. There can be trade barriers in some countries which will restrict the trade benefit. Owing a subsidiary is beneficial when it is profitable but when subsidiary incurs loss the parent has to bear it. It involves high risk investment.

Answer 2

The advantage and disadvantage listed below and their matches in their corresponding mode.

1. Exporting- Manufacturing and transportation costs
2. Turnkey Contracts- FDI and foreign country
3. Licensing  - Risk and Capital investment
4. Franchising- Host country and controls
5. Joint Venture - Development cost and Operational Strategy
6. Who Ply-own (wholly owned subsidiary)- Risks and profits
7. Subsidiaries -  Costs, risks and profits

Firms can often use different modes to enter foreign markets. They can use  exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host-country firm  etc.

Turnkey project : the contractor is in good terms and agrees to handle every detail of the project for a foreign client.

Licensing agreement : licensor often gives the rights to intangible property to another entity for time period under a fee. Franchising is involve longer-term commitments than licensing.

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