132 CHAPTER 6 MARKETINGINGLOBALMARKETS
AJicensingarrangementcontainsrisk,inthatif thebusinessisverysuccessful.profit
potentialsarelimitedbythelicensingagreement.Alternatively,a licensormakesa long-
termcommitmenttoa firmandthatfirmmaybelesscapablethanexpected.Or,thelicensee
maybeunwillingtoinvestthenecessaryresourcesasneededtobesuccessful.Licersing
maybetheleastprofitablealternativeformarketentry.Scarcecapital, importrestrictions,
orgovernmentrestrictionsmaymakethistheonlyfeasiblemeansforsellinginanother
country.
Franchisingrepresentsa verypopular typeoflicensingarrangementformanycon-
sumerproductsfinns.HolidayInn,HertzCarRental,andMcDonald'shaveallexpanded
intoforeignmarketsthroughfranchising.JointVentures
Ajointventureis a partnershipbetweena domesticfinnanda foreignfirm. Bothpartners
investmoneyand shareownershipandcontrolofpartnership.Jointventures requirea greater
commitmentfromfirmsthanlicensingorthevariousotherexportingmethods.Theyhave
moreriskandlessflexibility.
Adomestic firmmaywishtoengageinajointventurefora varietyofreasons;for
example,GeneralMotorsandToyotahaveagreedtomakea subcompactcartobesoldthrough
GMdealers usingtheidleGMplantinCalifornia.Toyota'smotivationwastoavoidU.S.
importquotasandtaxesoncarswithoutanyU.S.-madeparts.DirectInvestment
Multinationalorganizationsmaychoosetoengageinfull-scaleproductionandmarketing
abroad.Thus,theywillinvestinwhollyownedsubsidiaries.Anorganizationusingthis
approachmakesadirectinvestmentinoneormoreforeignnations.Organizationsengag-
inginlicensingorjointventuresdonotownmanufacturingandmarketingfacilitiesabroad.
Byestablishingoverseassubsidiaries,a multinationalorganizationcancompetemore
aggressivelybecauseitis"in"themarketplace.However,subsidiariesrequiremoreinvest-
mentasthesubsidiaryisresponsibleforallmarketingactivitiesina foreigncountry.While
suchope: ationsprovidecontrolovermarketingactivities,considerableriskis involved.The
subsidiarystrategyrequirescompleteunderstandingofbusinessconditions,cllstoms,mar-
kets, labor,andotherforeignmarketfactors.U.S. CommercialCenters
Anothermethodofdoingbusinessoverseashascomeintheformofu.s.CommercialCen-
ters.^8 ACommercialCenterservesthepurposeofprovidingadditionalresourcesforthe
promotionofexportsofU.S.goodsandservicestohostcountries.TheCommercialCen-
terdoessobyfamiliarizingU.S.exporterswithindustries,markets,andcustomsofhost
countries. Theyarefacilitatingagenciesthatassistwiththethreearrangementsjustdiscussed.
U.S.CommercialCentersprovidebusinessfacilitiessuchasexhibitionspace,con-
ferencerooms, andofficespace.Theyprovidetranslationandclericalservices.Theyhave
a commerciallibrary.Theyhavecommercial lawinformationandtradepromotionfacili-
ties,includingthefacilitationofcontactsbetweenbuyers. sellers,bankers,distributors,agents,
anogovernmentofficials.Theyalsocoordinatetrademissionsandassistwithcontractsand
exportandimportarrangements.