PTS: 1 DIF: Difficulty: Challenging REF: p. 483-486 OBJ: LO: 18-3a-183b NAT: BUSPROG: Communication STA: DISC: Economic Environments KEY: Bloom’s: Comprehension 6. Polly has formed an agreement with a French company to produce and sell her scarves in their ten stores across Europe. The scarves are Polly’s original designs and are of different colors and fabrics. They will then pay Polly a fee for each scarf they produce. What are the advantages and disadvantages of the globalization strategy Polly will be utilizing? ANS: Polly is participating in foreign licensing where the French company will sell scarves across Europe after purchasing the rights to do so. Polly’s company is considered the licensor and the rights will be paid for in the form of royalties.
Advantages: This method of expansion is the least expensive way to go global, since the licensee bears all the costs and risks related to setting up a foreign operation. Foreign licensing could also help protect again counterfeit activity as having the French company as a local presence which protects against the use of another company using Polly’s designs in inappropriate ways. Specific to this example, a scarf is considered a design item and having a French company’s name associated with the scarves might strengthen the brand image. Disadvantages: The French company would make all the production and marketing decisions and Polly must share returns from international sales with the French company. PTS: 1 DIF: Difficulty: Challenging REF: p. 486 OBJ: LO: 18-3c NAT: BUSPROG: Communication STA: DISC: Economic Environments KEY: Bloom’s: Comprehension 7. Nicole is the CEO of a small business which is looking to expand globally. She wants to move her business to a European country and feels that is where the product will be most profitable. What are three challenges that Nicole needs to analyze for the area in which she is considering expanding her company? ANS: Political Risk : Nicole needs to look at the stability of the country’s government. Potential problems could be new regulations on advertising to a governmental take over of assets. Nicole’s export market, requirements to reveal trade secrets or demands for in-country work can all be effects of the political regime. For Nicole’s choice of Europe, she could anticipate a more stable political situation than many other areas of the world. Economic Risk : Governmental management of economic funds is important with two of the most serious problems being inflation and fluctuations in exchange rates. This risk is especially serious for small companies that are just getting established in international markets. To protect against exchange rate shifts, these businesses should take preventive measures such as contracts in U.S. dollars or using other financial strategies that minimize risk. Nicole would have to deal with the euro and the conversion to U.S. dollars. Depending on where Nicole wanted to place the business, economic risk could be greater in some countries in the European Union than others.
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- Spring '17
- lorid bradshaw
- Business, Management