Should ABC license the new process to others or build factories itself?

• A. Licensing could generate income with less capital risk, but owning factories may give ABC more control over quality, profits, and brand reputation.
• B. Licensing is always better than manufacturing.
• C. Licensing could not generate income.
• D. Owning factories has no benefits.

Answer: (A)

The main idea here is weighing expansion options that affect risk, control, and profitability. Licensing lets ABC earn income from another firm using its technology or brand abroad with much less up-front capital and financial risk. That’s attractive because you can enter markets faster and with lower exposure if demand is uncertain. However, licensing means you give up some control over how the product is produced and sold, which can affect quality, consistency, and the use of your brand. Royalty income also reduces your margins since part of the revenue goes to the licensee.

Owning factories, by contrast, puts ABC in full control of production, quality standards, pricing, and the brand experience, which can lead to higher profits and stronger brand reputation over time. But it requires significant capital investment, higher operating risk, and more management complexity.

So the best answer recognizes both sides: licensing could generate income with less capital risk, while owning factories may give ABC more control over quality, profits, and brand reputation. The other options overlook these trade-offs or assume one route is always better or has no benefits, which isn’t consistent with how firms evaluate expansion strategies.