Derrido is an American firm that has produced several successful animated TV series in the United States. It is considering contracting with one or more international companies as a way to market its products overseas. Derrido's chief financial officer thinks that the company should enter into a contractual agreement because it will give Derrido an immediate and steady stream of revenue. Which of the following, if true, would strengthen this argument?
A) Contractual relationships with foreign companies usually involve many rounds of negotiations.
B) Contractual relationships are less expensive to enter into than direct investment.
C) Compared to direct investment, contractual relationships make business less subject to unpredictable changes.
D) Compared to other forms of entry into international markets, contractual relationships tend to be risky.
E) Foreign companies in contractual relationships may behave unpredictably at future points in time.

Question

Quizplus · Accepted Answer

The argument made by the chief financial officer is that a contractual agreement will give Derrido an immediate and steady stream of revenue. Option C strengthens this argument by pointing out that compared to direct investment, contractual relationships make business less subject to unpredictable changes. This means that a contractual agreement will be more reliable in generating steady revenue streams as it is less likely to be affected by unforeseen events. Options A, B, D, and E do not provide any support for the argument made by the chief financial officer. Option A points out a potential drawback of entering into a contractual agreement, option B does not provide any comparative advantage of a contractual agreement over other forms of entry, option D suggests that contractual relationships are risky, which weakens the argument made by the chief financial officer, and option E suggests that foreign companies may behave unpredictably, which again weakens the argument.

Derrido Is an American Firm That Has Produced Several Successful