Scenario:You are the owner of a small U.S.-based clothing manufacturer. For the past five years, t-shirts from your brand have been produced and sold in Japan through a licensing agreement with Japanese firm KUME Co. through its Tokyo Tees subsidiary. The KUME Co. CEO recently visited you and revealed that her firm was about to acquire its leading rival in the Japanese market and, as a result, wants to sell its Tokyo Tees unit. The CEO had approached your firm with two proposals.

First, KUME Co. is willing to sell you its Tokyo Tees subsidiary outright. This would represent an acquisition for you in the Japanese market.

Second, if the two firms cannot agree on terms for a purchase of Tokyo Tees, KUME Co. is willing to sell its licensing agreement back to you, which will effectively allow you to formulate a new strategy for your company in Japan.

• Identify the costs and benefits with acquisition of the existing subsidiary and maintaining production in Japan.
• Compare the costs and benefits of a licensing repurchase and either establishment of a new production subsidiary in Japan through a Greenfield venture, exporting the American-produced t-shirts to Japan, franchising to another firm, or re-licensing to another firm.
• Explain your choice from the available options and your reasoning for your choice.