Explain Management Contracting with an Example

Question

Examlex · Accepted Answer

The Answer is Management contracting is a type of joint venture. In short, the domestic firm provides the management know-how to a foreign company that supplies the capital. So the domestic firm exports management services rather than products. Hilton uses this arrangement in managing hotels around the world. For example, the hotel chain operates DoubleTree by Hilton hotels in countries ranging from the United Kingdom and Italy to Peru and Costa Rica, to China, Russia, and Tanzania. The properties are locally owned, but Hilton manages the hotel with its world-renowned hospitality expertise. Management contracting is a low-risk method of getting into a foreign market, and it yields income from the beginning. The arrangement is even more attractive if the contracting firm has an option to buy some share in the managed company later on. The arrangement is not sensible, however, if the company can put its scarce management talent to better uses or if it can make greater profits by undertaking the whole venture. Management contracting also prevents the company from setting up its own operations for a period of time.

Explain Management Contracting with an Example

Definitions: