Test: International Business - 1 - Commerce MCQ

Licensing means a business arrangement in which one company gives another company permission to manufacture its product for a specified payment. Such permission includes right to use intellectual property.

Contract manufacturing refers to a type of outsourcing in international business where a firm enters into a contract with one or a few local manufacturers in foreign countries to get certain components or goods produced as per its specifications.

Joint Ventures:
- When two or more firms come together to create a new business entity that is legally separate and distinct from its parents, it is known as a joint venture.
- In a joint venture, the participating firms contribute their resources, expertise, and capital to the new entity.
- The purpose of a joint venture is to achieve a specific business objective or to enter a new market or industry.
- The new entity operates independently and has its own management structure, assets, and liabilities.
- The participating firms share the profits, losses, and risks of the joint venture based on their agreed-upon ownership or partnership structure.
- Joint ventures can be formed between companies in the same industry or between companies in different industries.
- Joint ventures provide an opportunity for firms to leverage each other's strengths, share costs and risks, and access new markets or technologies.
- Joint ventures can be temporary or long-term partnerships, depending on the objectives and agreements of the participating firms.
- Joint ventures require careful planning, negotiation, and legal documentation to ensure that the interests of all parties are protected and that the venture operates smoothly.
- Examples of joint ventures include collaborations between automobile manufacturers for the development of new technologies, partnerships between pharmaceutical companies for drug research and development, and alliances between airlines for code-sharing and route expansion.

In exporting the physical presence is missing in the foreign markets. As the exporter/owner does not have the knowledge of the market trend in other countries due lack of his presence in those markets, it is one the disadvantages of exporting.

Foreign firms entering into joint ventures share the technology and trade secrets with local firms in foreign countries, thus always running the risks of such a technology and secrets being disclosed to others apart from the risks associated with entry into foreign markets with unknown business environments.

To determine which mode of entry permits the greatest degree of control over overseas operations, we need to compare the options provided.
A: Contract manufacturing
- Involves outsourcing the manufacturing process to a third party.
- The company retains control over product design and specifications but has limited control over production and operations.
B: Licensing/franchising
- Involves granting the rights to use intellectual property, brand, or business model to another party.
- The company has limited control over the operations and activities of the licensee or franchisee.
C: Wholly owned subsidiary
- Involves establishing a new subsidiary in the foreign market, where the company has full ownership and control.
- Provides the highest degree of control as the company can make all strategic and operational decisions.
D: Joint venture
- Involves partnering with a local company to establish a new entity.
- The degree of control varies depending on the terms of the joint venture agreement, with shared decision-making and control.
Therefore, the mode of entry that permits the greatest degree of control over overseas operations is wholly owned subsidiary (option C).

To determine which mode of entry brings the firm closer to international markets, we need to consider the characteristics and implications of each mode.
Joint venture:
- A joint venture involves two or more firms from different countries forming a new entity to pursue a specific business opportunity.
- The firm that enters into a joint venture gains access to the local market knowledge, resources, and networks of the local partner.
- By collaborating with a local partner, the firm can establish a strong presence in the international market.
Franchising:
- Franchising involves licensing the rights to use a brand or business model to another party.
- The franchisor provides support and guidance to the franchisee.
- The franchisee gains access to an established brand and business model, which can help them penetrate international markets more easily.
- However, the franchisor may have limited control over the operations of the franchisee.
Licensing:
- Licensing involves granting the rights to use intellectual property (such as technology, trademarks, or patents) to another party.
- The licensee gains access to the intellectual property and can use it to enter international markets.
- However, the licensor may have limited control over the licensee's operations.
Contract manufacturing:
- Contract manufacturing involves outsourcing the production of goods to a third-party manufacturer.
- The firm can leverage the manufacturing capabilities and expertise of the contract manufacturer to enter international markets.
- However, the firm may have limited control over the production process and quality.
Based on the above analysis, joint venture brings the firm closer to international markets as it allows for collaboration with a local partner, providing access to local market knowledge and resources.

Oil and petroleum products are not amongst the largest export item of India.
Saudi Arabia is the largest exporter of Oil and Petroleum Products.

Correct Answer :- d

Explanation : Oil and petroleum are natural products and are mostly found in Middle East countries. Crude oil is imported from these countries by India and is then refined to obtain petroleum and petroleum products. We are the importers of oil rather than exporters.

To identify which country is not amongst India's major trading partners, we need to analyze the given options and determine which one does not fit. Let's break down each option individually:
A: Germany
- Germany is one of India's major trading partners.
- The two countries have a strong bilateral trade relationship, with trade in various sectors.
B: New Zealand
- New Zealand is not commonly mentioned as one of India's major trading partners.
- The trade volume between India and New Zealand is relatively smaller compared to other countries.
C: UK
- The United Kingdom is one of India's major trading partners.
- The two countries have historical trade ties and continue to have significant trade relations.
D: USA
- The United States is one of India's major trading partners.
- The two countries have a robust trade relationship, covering various sectors.
Based on the analysis, we can conclude that New Zealand is not amongst India's major trading partners.