Question

Methods Used to Conduct International Business Duve, Inc., desires to penetrate a foreign market with either a licensing agreement with a foreign firm or by acquiring a foreign firm. Explain the differences in potential risk and return between a licensing agreement with a foreign firm and the acquisition of a foreign firm.

Answer 1

Duve Inc. desires to penetrate a foreign market with either a licensing agreement with a foreign firm or by acquiring a foreign firm.

Licensing agreement: Licensing agreement gives the right to the licensee to own or produce the goods and sell with the trademark of licensor. This strategy is generally used when you need to penetrate the market but want to make very less investment here the profit will be shared between the licensee and the licensor or it will be fixed monthly amount which licensor will get from the licensee.

Acquisition: In an acquisition entire financial and operating risk comes to the acquire if the acquisition fails it may have the deep impact on the running of the parent company as all the financial assets and liability are with the parent company but if the company makes profit and soar in value then it will get more return then the license agreement.

So Acquisition is more risky than the license agreement as a result risk involved is more and so are rewards.