Ch5 — Global Business — Lesson & Tracker
Progress Tracker
| Concept | Attempts | Correct | Last Tested | Status |
|---|---|---|---|---|
| InternationalTradeTheory | 1 | 1 | 2026-04-17 | 🟢 |
| InternationalEntryMethods | 2 | 1 | 2026-04-18 | 🟢 |
Your Weak Points
| Gap | What you did | What you need |
|---|---|---|
| Licensing vs. Franchising | Called a franchising scenario “licensing” | Licensing = make/sell the product. Franchising = brand + entire operating system. |
| Reasoning | Excellent — cost savings, local knowledge ✅ | Keep this — it’s exam-quality |
Concept Map — Weak → Strong Connections
flowchart LR EXP["✅ Exporting<br/>Lowest risk + control"] --> LIC LIC["⚠️ Licensing<br/>Give rights to make<br/>or sell your product"] -->|"vs"| FRAN FRAN["⚠️ Franchising<br/>Brand + ENTIRE<br/>operating system"] --> JV JV["Joint Venture<br/>Shared ownership"] --> FDI["✅ FDI<br/>Highest risk + control"] LIC -->|"Exam giveaway:<br/>operating system =<br/>Franchising NOT Licensing"| FRAN
International Entry Methods — Lesson
Source: InternationalEntryMethods
The Spectrum — Risk and Control Rise Together
| Method | What the firm gives up | Risk | Control |
|---|---|---|---|
| Exporting / Importing | Nothing — no foreign presence | Lowest | Lowest |
| Branch Office | Capital to set up a sales office | Low | Low-Med |
| Licensing Agreement | Rights to manufacture/market your product | Low | Low |
| Franchising | Rights to your brand name + operating system | Low-Med | Med |
| Strategic Alliance / Joint Venture | Shared ownership and decision-making | Med-High | Shared |
| Foreign Direct Investment (FDI) | Full financial exposure — you own the assets | Highest | Highest |
The Distinction That Cost You Points
Licensing:
- You hand over the right to make and/or sell your product
- The foreign party manufactures it or markets it — your brand may or may not be visible
- Example: a pharmaceutical company lets a foreign firm manufacture its patented drug formula → licensing (manufacturing rights + royalties)
- You don’t control how the business is run, just what product can be made
Franchising:
- You hand over your brand name AND the entire operating system (how to run every aspect of the business)
- The franchisee runs a clone of your operation under your rules
- Example: Tim Hortons allows a foreign operator to run cafés using the exact same menu, design, equipment, training, and service standards → franchising
- You keep quality control through the system itself
The exam giveaway: If the question says “operating system,” “brand + how to run it,” “identical to domestic locations,” or “under supervision and agreement” → franchising, not licensing.
Why Firms Choose Franchising Over FDI
You already explained this well. Reinforce it:
- Lower capital commitment — franchisee funds the buildout
- Local market knowledge — the franchisee understands local tastes, customs, regulations
- Faster market entry — expand many locations at once without owning each one
- Shared risk — poor performance is partly the franchisee’s problem, not yours alone
Why Firms Choose FDI (the opposite end)
When control matters most: quality-critical industries, proprietary technology, or when local laws require local ownership. Highest risk, but you capture 100% of profits and make all decisions.
Exam Scenario Identification Strategy
Read the scenario and ask: what is the foreign party doing?
- Making or selling your product under a deal → Licensing
- Running a copy of your entire business → Franchising
- Selling your goods abroad from their home country → Exporting
- Partnering with a foreign firm on a specific project → Joint Venture
- Building or buying assets in the foreign country → FDI