Allured Cosmetics Corp. enters into a contractual agreement with Pure Cosmetics

Question

Allured Cosmetics Corp. enters into a contractual agreement with Pure Cosmetics Inc., a manufacturing firm in the West Coast. According to the contract, Pure Cosmetics can use the manufacturing processes of Allured Cosmetics to produce cosmetics in return for a specific fee. Pure Cosmetics is bound to use the manufacturing process only to make complementary products for the cosmetics manufactured by Allured Cosmetics. This collaborative arrangement is most accurately classified as ________.

a joint venture

licensing

outsourcing

capability complementation

a joint venture

licensing

outsourcing

capability complementation

Explanation / Answer

Option d : Capability complementation

In the above scenario , Allured cosmetics corp entered into an agreement with Pure Cosmetics inc. As per the agreement, Pure Cosmetics Inc can utilise the manufacturing process of Allured cosmetics to develop complimentary products. It clearly indicates that Allured cosmetics already has the equipements in place but chooses to focus on its core product while utilising the capabilities of the Pure cosmetics. Thus it is pooling of capabilities while there are no specific resource transfer. In the case of outsourcing , the party outsources part of manufacturing process to other party which manufactures the product under the brand name of first party. Since here the contract is for manufacturing complimentary goods hence it is clearly not a case of outsourcing. Similarly licensing and Jooint venture conditions are also not satisfied. Hence capability complimentation is the appropriate agreement type for this scenario.

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