1. Hexagon Corporation, an American High-tech company, wants to set up operation

Question

1. Hexagon Corporation, an American High-tech company, wants to set up operations in a foreign country to profit from its core competency in technological know-how. Therefore, the company needs to select an entry mode that offers protection of technology. Which of the following entry modes is most suitable for Hexagon Corporation?

A) Wholly owned subsidiary B) Turnkey project C) Franchising D) Joint venture E) Strategic alliance

2. Tasty Pasta in an American fast food restaurant chain with locations in 20 countries. When the company enters a new foreign market, it usually selects a combination of franchising and master subsidiaries. These master subsidiaries are joint ventures with local partners because of the advantages joint ventures bring to Tasty Pasta. Specifically, joint ventures are politically more acceptable and they

A) Help realize location and experience curve economies B) Avoid high transport costs C) Ensure a steady stream of loyalty payments . D) Tend to provide a higher control over technology. E) Bring a degree of local knowledge to the subsidiary.

Explanation / Answer

(1)

Since the firm will own 100% of the stocks of a subsidiary form in the case of a Wholely owned subsidy, it will have the option of having a protection over its technology. Option (A) is correct.

(2)

Joint ventures provide the access to the local partner's knowledge. Note that for a JV, the management is controlled by the parent company and since it has a substantial stake, it can also have the access to local knowledge. Option (E) is correct.

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