Which of the following is a disadvantage of utilizing a licensing strategy to participate in foreign markets?

Cane’s software company has decided to utilize a licensing strategy to participate in foreign markets. However, the Chief Operating Officer has significant concerns about the risks inherent in this business model of expansion.

Which of the following is a disadvantage of utilizing a licensing strategy to participate in foreign markets?
A . non-committal of human capital and financial resources to the foreign markets
B . ability to safeguard the company’s technical know-how or patents.
C . sustainability concerns, environmental regulations, and reputational loss
D . Volatility of environmental factors in the political, economic, demographic, and legal spheres.

View Answer

Answer: B

Explanation:

Licensing is a transfer-related market entry strategy. It involves a company (known as the licensor) granting permission to a company in another country to use its intellectual property for a defined time period. A core disadvantage of a licensing strategy is that the licensor may not have the ability to safeguard or control the company’s technical know-how or patents.

The advantages of using a licensing strategy to participate in foreign markets include; being able to leverage the company’s technical know-how without committing significant additional resources to markets that are unfamiliar, politically volatile, economically uncertain, or otherwise risky.