A company is licensing its products when it
Multiple Choice
A allows another company to pay it a fee to train its employees.
B develops a strategic plan for another organization.
C pays a competitor a fee to stop the competitor from selling its products in the company’s territory.
D allows a foreign company to pay it a fee to make or distribute the first company’s product or service.
The correct answer and explanation is :
Correct Answer: D. Allows a foreign company to pay it a fee to make or distribute the first company’s product or service.
Explanation (300 words):
Licensing is a business arrangement in which one company (the licensor) allows another company (the licensee), often in a foreign country, to use its intellectual property—such as trademarks, patents, technology, or production processes—in exchange for a fee or royalty. This is a common strategy for companies looking to expand into international markets without investing heavily in building physical infrastructure abroad.
In the context of the question, Option D accurately describes this process. The original company is granting a foreign entity the legal right to manufacture or distribute its product or service. In return, the foreign company pays a licensing fee. This allows the licensor to enter new markets, increase brand exposure, and generate revenue with relatively low risk.
Licensing is particularly useful when trade barriers, high transportation costs, or local regulations make it challenging to export products directly. It also enables the local company to adapt the product to cultural or regulatory differences, improving its chances of success in that market.
Let’s break down the incorrect options:
- A refers to training services, not licensing.
- B is more related to consulting or strategic partnerships, not licensing.
- C describes a non-compete or exclusionary agreement, which could be unethical or illegal in some jurisdictions and does not constitute licensing.
In summary, licensing (Option D) is a strategic international business method that leverages the resources of local firms while extending the reach of the original company’s products. It reduces financial and operational risk, provides a steady income stream, and promotes global brand presence—all without the complexities of directly managing overseas operations.