56. A company is seeking to expand into a new market and prefers an entry strategy that will have a direct operating presence in a foreign country. Which entry strategy should it pursue?
Answer: C
A company should pursue a subsidiary as an entry strategy.
A subsidiary provides the company with a direct operating presence in a foreign country, allowing full control over its operations and strategies.
A) Franchising
Franchising allows a company to expand by granting rights to another party to operate a business under its brand. However, it does not provide direct control or an operating presence in the foreign market, making it less suitable for the company's need for direct involvement.
B) Licensing
Licensing involves permitting another entity to use intellectual property, trademarks, or technology for a fee. While it can facilitate entry into a new market, it lacks the direct operating presence necessary for the company's expansion goals.
C) Subsidiary
A subsidiary is a separate legal entity established in a foreign country, owned or controlled by the parent company. This entry strategy ensures a direct operating presence, allowing the company to manage operations effectively and adapt to local market conditions.
D) Joint venture
A joint venture entails partnering with a local firm to share resources and risks. Although it offers some degree of control and local market insight, it does not provide the same level of direct operating presence as a wholly owned subsidiary.
Conclusion
The subsidiary is the most appropriate entry strategy for the company as it allows for a direct operating presence in the foreign market, which is essential for effective management and control. Other options such as franchising, licensing, and joint ventures either dilute control or do not establish a full operational presence, thereby failing to meet the company's strategic objectives.