respond the following (4) Discussion posts by either agreeing or disagreeing and why. Use 100 words and two sources each.Discussion 4:
Contractual Entry Modes
Contractual entry modes provide options for companies to enter international markets. Discuss the different options. What are the pros and cons of each?
Companies that do not have a tangible product and that need to market their unique and specially designed assets and skills can enter international markets by a variety of contracts. These contracts can be in the form of licensing, franchising, management contracts, and turnkey projects.
Licensing involves one company (the licensor) granting another company (the licensee) the right to use their specially designed assets or skills for a specified period of time to produce a finished product. Another form of licensing is cross licensing. Cross licensing is when companies use licensing agreements to exchange intangible property with one another. (Wild & Wild, 2016) A couple of advantages of using licensing is that it can be used by licensors to finance their international expansion and it also can be used as a method to upgrade existing production technologies. It also helps to reduce risks that the licensor may face when operating in unstable markets. Disadvantages to licensing include restricting the licensor’s future activities and reducing the global consistency of quality and marketing of the licensor’s product.
Franchising involves the practice of one company (the franchiser) supplying another (the franchisee) with intangible property and other assistance over time. An example of this is starting a fast food franchise like McDonald’s. One advantage of franchising is that its a low-cost, low-risk entry mode into a new market. Another advantage is that it allows for rapid expansion into other geographical locations. Some disadvantages of franchising is that it can be cumbersome to manage many franchisees in different national markets and it also lessens franchisees’ organizational flexibility.
Management contracts is the practice by which one company supplies another with managerial expertise for a specific period of time. (Wild & Wild, 2016) Some advantages of management contracts are that it reduces the risk to its physical assets while exploiting an international business opportunity. It can also help develop the skills of local workers and managers and also helps nations finance projects and investments. Some disadvantages of management contracts are that it puts the supplier’s personnel at risk and it can create a competitor by giving expert suppliers the opportunity nurture that new competitor.
Turnkey projects are the last contractual entry modes. Turnkey projects is the practice by which one company designs, constructs, and tests a production facility for a client firm. Turnkey projects are usually large-scale projects that involve government agencies. An advantage of turnkey projects is that it allows firms to specialize in their core competencies and take advantage of opportunities that they couldn’t do by themselves. Another advantage is gives nations the opportunity to obtain designs for infrastructure from the world’s leading companies. A couple of disadvantages are that turnkey projects may be granted to the company with the best political connections for political reasons instead of being based on its technological knowledge. Turnkey projects can also create future competitors.
References
Wild, J. J., & Wild, K. (2016). International Business The Challenges of Globalization (8th ed.). Pearson Education.