Exam 9: Exporting, Importing, and Global Sourcing

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Contractual modes involve the use of contracts rather than investment.The two main contractual entry modes are licensing and franchising.Licensing is defined as the granting of permission by the licenser to the licensee to use intellectual property rights, such as trademarks, patents, brand names, or technology, under defined conditions.The possibility of licensing makes for a flatter world, because it creates a legal vehicle for taking a product or service delivered in one country and providing a nearly identical version of that product or service in another country.Under a licensing agreement, the multinational firm grants rights on its intangible property to a foreign company for a specified period of time.The licenser is normally paid a royalty on each unit produced and sold.Although the multinational firm usually has no ownership interests, it often provides ongoing support and advice.Most companies consider this market-entry option of licensing to be a low-risk option because there is typically no upfront investment.The advantage of licensing for a multinational firm is that the company's products will be manufactured and made available for sale in the foreign country (or countries)where the product or service is licensed.The multinational firm does not have to expend its own resources to manufacture, market, or distribute the goods.This low cost, of course, is coupled with lower potential returns, because the revenues are shared between the parties.Similar to a licensing agreement, under a franchising agreement, the multinational firm grants rights on its intangible property, like technology or a brand name, to a foreign company for a specified period of time and receives a royalty in return.The difference is that the franchiser provides a bundle of services and products to the franchisee.Each franchise pays a franchisee fee and a percentage of its sales and is required to purchase certain products from the franchiser.In return, the franchisee gets access to all of the franchiser's products, systems, services, and management expertise.