Licensing Practice Questions PDF

Example questions Licensing, Franchising, and Other Contractual Strategies 1) ________ is a fee paid periodically to compensate a licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of the licensed asset. A) Duty B) Residual...

Example questions Licensing, Franchising, and Other Contractual Strategies 1) ________ is a fee paid periodically to compensate a licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of the licensed asset. A) Duty B) Residual C) Royalty D) Tariff Answer: C 2) When a firm allows others to use an entire business system in exchange for compensation, the arrangement is known as ________. A) industrial design rights B) franchising C) joint venture D) equity venture Answer: B 3) Which of the following is an advantage of licensing? A) It is ideal for products, services, or knowledge that is highly complex. B) It is easy to maintain control over how the licensed asset is used. C) It requires very little capital investment in the foreign market. D) It guarantees a basis for future expansion in the market. Answer: C 4) An advantage of licensing is that firms are able to ________. A) enter markets with extensive trade barriers B) guarantee a basis for future expansion C) control how the licensed asset is used D) resolve disputes easily Answer: A 5) By establishing a brand name and market power through a licensing agreement, licensors are able to ________. A) establish a more durable presence in the local market B) control the use of the licensed asset C) control the dissipation of important intellectual property to competitors D) avoid the risk of creating a future competitor Answer: A 6) The reputation of a licensor will be jeopardized by a licensing agreement if the licensee ________. A) markets competing products for significantly lower prices B) uses the licensing asset to create products of poor quality C) refuses to pay the agreed upon royalties to the licensor D) does not guarantee future expansion in the market Answer: B 7) Which of the following is an example of franchising? A) An Italian clothing company opens manufacturing factories in China and Bangladesh to reduce manufacturing costs. B) A U.S-based quick-service restaurant gives rights to another business to use its entire business system in exchange for compensation and royalties. C) A U.S.-based animation company allows factories in China to use their famous cartoon character on mugs and stationery. D) A Germany automobile manufacturer opens an office in Philippines for its customer care operations. Answer: B 8) Franchising is an advanced form of licensing in which the franchisor allows the franchisee the right to use an entire business system in exchange for compensation. Answer: TRUE 9) Host-country governments often encourage franchising because most of the money generated by the franchise remains in the local economy. Answer: TRUE 10) Turnkey contracting is an arrangement in which the focal firm or a consortium of firms plans, finances, organizes, manages, and implements all phases of a project abroad and then hands it over to a foreign customer after training local workers. Answer: TRUE 11. Compare and contrast licensing and franchising as foreign market entry strategies. Why is franchising a more comprehensive strategy? Answer: A licensing agreement specifies the nature of the relationship between the owner of intellectual property, the licensor, and the user of the property, the licensee. High-technology firms routinely license their patents and know-how to foreign companies. For example, Germany's Cognitec licensed the use of its face recognition technology to U.S. chip manufacturer Intel, which will use the technology to control access to laptops, tablets, and similar devices. Upon signing a licensing contract, the licensee pays the licensor a fixed amount up front and an ongoing royalty of typically 2 to 5 percent of gross sales generated from using the licensed asset. The fixed amount covers the licensor's initial costs of transferring the licensed asset to the licensee, including consultation, training in how to deploy the asset, engineering, or adaptation. Certain types of licensable assets, such as copyrights and trademarks, may have lower transfer costs. The royalty percentage may escalate with increasing sales. Franchising is an advanced form of licensing in which the focal firm, the franchisor, allows an entrepreneur, the franchisee, the right to use an entire business system in exchange for compensation. As with licensing, an explicit contract defines the terms of the relationship. Franchising is more comprehensive than licensing because the franchisor prescribes virtually all of the business activities of the franchisee. The franchisor tightly controls the business system to ensure consistent standards. International franchisors employ globally recognized trademarks and attempt to guarantee the customer a uniform retail experience and consistent product quality. Completely standardized business activities, however, are difficult to replicate across diverse markets. Differences in franchisee resources, key ingredients, worker qualifications, and physical space may necessitate changes to the franchise formula. 12) Describe five advantages of licensing agreements from the perspective of the licensor. Answer: a. Licensing requires neither substantial capital investment nor direct involvement of the licensor in the foreign market. Unlike other entry strategies, the licensor need not establish a physical presence in the market or maintain inventory there. b. Licensing makes entry possible in countries that restrict foreign ownership in security- sensitive industries, such as defense and energy. c. Licensing also facilitates entry in markets that are difficult to enter because of trade barriers, tariffs, and bureaucratic requirements, which usually apply only to exporting or FDI. d. Licensing can be used as a low-cost strategy to test the viability of foreign markets. By establishing a relationship with a local licensee, the foreign firm can learn about the target market and devise the best future strategy for establishing a more durable presence there. For example, Swiss pharmaceutical manufacturer Roche entered a licensing agreement with Chugai Pharmaceuticals in Japan, where success requires substantial knowledge of the local market and the drug approval process. The relationship accelerated Roche's penetration of the huge Japanese market. e. Licensing can also help the firm develop its brand name in a target market and preempt the later entry of competitors.