Management Notes

Reference Notes for Management

Which one of the Following is not the way by which an entrepreneur can enter into international business?

Which one of the Following is not the way by which an entrepreneur can enter into international business?


A. Export
B. Non equity arrangements
C. Direct foreign investment
D. Communication

The Correct Answer Is:

  • D. Communication

The correct answer is D. Communication.

Entering into international business can be accomplished through various methods, and these methods are often categorized into different modes of entry. In the given options, let’s discuss each method in detail and explain why Communication is not a direct way for an entrepreneur to enter international business.

A. Export:

Exporting is one of the most common and traditional ways for entrepreneurs to enter international business. This method involves selling goods or services produced in one country to customers in another country.

Exporting can take several forms, including direct exports, where the entrepreneur sells their products directly to foreign customers, or indirect exports, where they use intermediaries such as export agents or distributors.

Exporting is a relatively straightforward way to enter international markets because it allows entrepreneurs to leverage their existing products or services without the need for significant investment in foreign operations. It is a practical approach for small and medium-sized enterprises (SMEs) and offers the opportunity to test international waters.

B. Non-Equity Arrangements:

Non-equity arrangements refer to various collaborative strategies that allow entrepreneurs to engage in international business without taking ownership stakes in foreign firms. These arrangements include licensing, franchising, contract manufacturing, and strategic alliances.

For instance, licensing allows an entrepreneur to grant permission to a foreign company to use their intellectual property, such as patents, trademarks, or copyrights, in exchange for royalty payments.

Franchising involves selling the rights to operate a business model to foreign partners, and contract manufacturing entails outsourcing the production of goods to foreign companies. Strategic alliances involve partnerships between firms from different countries to achieve common goals.

Non-equity arrangements provide entrepreneurs with a means to expand internationally while mitigating risks and capital requirements, making it a suitable choice for those looking to tap into foreign markets without extensive investment.

C. Direct Foreign Investment:

Direct foreign investment is a more extensive and complex way for entrepreneurs to enter international business. It involves establishing or acquiring operations in foreign countries. This method typically requires substantial financial commitments and often involves owning or controlling foreign subsidiaries, joint ventures, or wholly-owned enterprises.

Entrepreneurs who choose direct foreign investment are willing to invest heavily in foreign markets and establish a more significant presence. This approach can offer long-term benefits, including better market control and access to local resources, but it also carries higher risks and requires a thorough understanding of local markets, regulations, and cultures.

D. Communication (Not a way to enter international business):

Communication is not a direct way to enter international business. While effective communication is undoubtedly a critical aspect of international business, it is not a mode of entry on its own. Communication is a supporting function that facilitates various other methods mentioned above.

Entrepreneurs may use communication to market their products, negotiate deals, build relationships with foreign partners, or conduct market research. It is an essential tool in all aspects of international business but does not constitute an independent entry mode.

In conclusion, the correct answer is D. Communication because it is not a method of entering international business on its own. International business requires entrepreneurs to adopt specific entry strategies based on their objectives, resources, and risk tolerance.

Exporting, non-equity arrangements, and direct foreign investment are valid methods that entrepreneurs can employ to access international markets. Each method has its advantages and disadvantages, making it essential for entrepreneurs to carefully assess their goals and resources before choosing the most suitable approach.

Communication, while crucial for success in international business, serves as a means to support and enhance these entry methods rather than being an entry method itself.

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