What Is a Nonequity Arrangement? Define the Two Major Types

question 65

Essay

What is a nonequity arrangement? Define the two major types of nonequity arrangements: licensing and turn-key projects,and give at least one advantage and disadvantage for each.
A.Licensing - involves an entrepreneur who is a manufacturer (licensee)giving a foreign manufacturer (licensor)the right to use a patent,trademark,technology,production process,or product in return for the payment of a royalty.
Benefit: Low development costs and risks.
Disadvantages: Lack of control over technology,inability to realize location and experience curve economies,inability to engage in global strategic coordination.
B.Turn-key projects - A method of doing international business whereby a foreign entrepreneur supplies the manufacturing technology or infrastructure for a business and then turns it over to local owners.
Benefits: relatively low risk,ability to earn returns from process technology skills in countries where FDI is restricted.
Disadvantages: Creation of efficient competitors,lack of long-term market presence.

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Definitions:

Envelope

In economics, often describes a theoretical outer limit or boundary, such as the envelope curve which envelopes all the possible positions of equilibrium.

Short-run Expansion Path

The route a firm takes to increase output by optimizing the combination of inputs used, given at least one fixed input, over a short period.

Variable Input

A production input whose quantity can be changed in the short term to influence output.

Fixed

Related to something that is unchanging, constant, or securely attached and not subject to variation.