If a firm's1. competitive advantage is based on firm-specific resources such as ownership of critical technology or of a strong brand,2. the firm is planning on entering into a foreign market where the intellectual property protection regime is strong, 3. the firm does not want to take on any significant risk of investment What will be the most reasonable entry mode for the firm? Group of answer choicesjoint venturelicensingmajority acquisitionWholly-owned subsidiary
Question
If a firm's1. competitive advantage is based on firm-specific resources such as ownership of critical technology or of a strong brand,2. the firm is planning on entering into a foreign market where the intellectual property protection regime is strong, 3. the firm does not want to take on any significant risk of investment What will be the most reasonable entry mode for the firm? Group of answer choicesjoint venturelicensingmajority acquisitionWholly-owned subsidiary
Solution
Given the conditions, the most reasonable entry mode for the firm would be licensing.
Here's why:
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The firm's competitive advantage is based on firm-specific resources such as ownership of critical technology or a strong brand. Licensing allows the firm to leverage these resources without having to build new operations from scratch in the foreign market.
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The foreign market has a strong intellectual property protection regime. This means that the firm's technology or brand is likely to be well-protected against infringement, making licensing a safer option.
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The firm does not want to take on any significant risk of investment. Licensing is less risky than other entry modes like joint ventures, majority acquisitions, or establishing a wholly-owned subsidiary because it requires less capital investment. The firm can earn royalty fees from the licensee without having to invest heavily in foreign operations.
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