The management of Sport Shoes Corporation, a U. S. firm, wants to expand into foreign investment and employment markets. They are considering either opening their own production facility in a foreign country or entering into a licensing agreement with a foreign firm. What are the advantages and disadvantages of each of these courses of action?

The correct answer to this open question is the following.

The management of Sports Shoes Corporation, a U.S. firm, wants to expand into foreign investment and employment markets. They are considering either opening their own production facility in a foreign country or entering into a licensing agreement with a foreign firm.

The advantage of considering opening their own production facility in a foreign country is that the firm will have total control of the business and the income and profit will go directly to Sports Shoes Corporation. The disadvantage would be that the company does not know the market if that foreign country, so it could face some obstacles and difficulties in the firsts years.

The other option is entering into a licensing agreement with a foreign firm, knowing that the firm knows the business because it has been established in that country for years so they know the country laws, fiscal regulations, the relationship with local workers, and most importantly, they know the market and their consumers. That would be the advantage.

The disadvantage would be that this learning curve in the new country has its cost, and the association with the firm means that Sports Shoes Corporation must split the revenue and corporate decisions.

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