Future Business Leaders of America (FBLA) Business Management Practice Test

What does a licensing agreement allow a company to do?

1. Expand markets and operations with foreign labor

2. Gain access to new markets via local partnerships

3. Share profits from foreign sales

4. None of the above

The correct answer is: Share profits from foreign sales

A licensing agreement is a legal contract that allows one party (the licensee) to use the intellectual property or assets of another party (the licensor) in exchange for compensation, typically in the form of royalties or a share of the profits. This arrangement is particularly beneficial in international business as it grants the licensee permission to produce or sell products or services that utilize the licensor's trademarks, patents, or proprietary technology. When the correct option indicates sharing profits from foreign sales, it highlights a key component of licensing agreements — the agreement often stipulates that the licensee will pay a percentage of their profits back to the licensor. This allows the licensor to benefit financially from the success of their products in new markets without the need to invest directly in those markets. The other options suggest different concepts related to international business strategies but do not encapsulate the essence of a licensing agreement. For example, while expanding markets and operations with foreign labor can be a strategic goal for companies, it is not typically achieved through licensing agreements, which focus on rights to use intellectual property rather than leveraging workforce. Gaining access to new markets via local partnerships might occur in broader business operations but is more characteristic of joint ventures or partnerships than licensing arrangements. Thus, sharing profits