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

What might companies choose if they want to avoid high costs for foreign operations?

1. Establishing a local subsidiary

2. Selling products through a foreign intermediary

3. Outsourcing production domestically

4. Acquiring a foreign company

The correct answer is: Selling products through a foreign intermediary

Companies often choose to sell products through a foreign intermediary as a strategic way to minimize high costs associated with establishing direct operations in a foreign market. This approach allows businesses to leverage the existing networks, local market knowledge, and logistical capabilities of intermediaries who are familiar with the local business environment. By doing so, companies can avoid the significant financial investments and risks tied to setting up their own subsidiaries, managing a workforce abroad, or navigating the complexities of international regulations. Utilizing a foreign intermediary also reduces operational headaches associated with direct involvement in production and distribution, allowing the company to focus on its core competencies such as product development and marketing. As a result, this method serves as a cost-effective solution for entering new markets with reduced financial exposure. Establishing a local subsidiary, outsourcing production domestically, or acquiring a foreign company generally entails higher initial expenditures and longer-term commitments, making them less favorable options for a company looking to control costs in foreign operations.