WHAT IS INTERNATIONAL BUSINESS? – ENTERING OVERSEAS MARKETS part 13

the article on entering international markets continues, part 13.

MANAGEMENT CONTRACT: when one firm provides management in all or specific areas for another firm, in exchange for a fee. Hilton Hotels, for example, provides management services for non-owned overseas hotels that use the Hilton name. In return, Hilton probably earns a fee that is a percentage of sales and, more importantly, gains brand recognition. Similarly, Delta Airlines also provides management services to foreign airlines in exchange for a fee.

PROS:
1) Entry to the market is rather simple.
2) Using business experience to help similar companies in other countries is easy to set up, operate, and collect on.
3) It also allows the experienced company an opportunity to research the market for other modes of entry.

CONS:
1) Lack of profit; a percentage of sales are not typically the largest margin possible when operating a business.
2) The foreign company will gain much insight into the business procedures of the expert company.
3) Detrimental to the expert company in the long run if the foreign firm ever becomes a competitor.

A. Turn-key Project can also be a form of contract management. This is when aspects of a business are contracted and then run for a specified amount of time until the purchaser takes over. Aspects of the project can be coordinated from inception through completion. These processes can include technology, design, construction, or providing expertise in a particular area.

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