1. What are the risks and benefits associated with exporting?

Name two
contractual modes of entry into a foreign country. Which do you think is
better and why? Why would a company choose to use a contractual mode of
entry rather than an investment mode?

Exporting is one way to enter international markets easily through selling and
distributing products and services to foreign markets. Firms use this strategy because of
its benefits such as access to a new market to sell products sourced from the home
country that will also result in a faster return of income because of expanding demands.
This can also contribute to less manufacturing expenses of the products as well as less
or avoidance of costs in establishing a new company in the new market. Through
exporting also, there will be a wider scope or reach of products to engage advertisement
and marketing for more engagements or possible sale transactions. However, entering
new markets internationally, risks are also inevitable. Some of these are being not able
to sell well and fail for expansion. Exporting is inclined with fees so the new market may
prefer cheaper local products rather than imported ones, thus this may also affect
connections or transactions with the local companies or partners. Failed sales would
probably lead to the termination of agreements that lead to short-term engagements with
the importer and/or distributors. Products are also critical to new markets because some
products may not be interesting to the new market despite their demand in the home
country because of the differences, especially in culture and needs.
Licensing and franchising are the two contractual modes of entry into a foreign
country. Licensing is a business arrangement in which one company gives another
company permission by the licenser to the licensee to use intellectual property rights such
as trademarks, patents, brand names, or technology under defined conditions. On the
other hand, franchising is when 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. In expanding in the international market, franchising
is a better mode of entry because, in this strategy, support is provided in site selection,
training, marketing, and much more. A franchise is also a more extensive legal
relationship that includes a license, unlike licensing which is only a limited legal
relationship. A company would rather choose a contractual than an investment mode of
entry because it is a low-cost and low risk compared to possible conflicts between
partners in an investment mode of entry. There is also a potential loss of control in one of
the parties in investing.