What is a management contract? What are the potential advantages to both parties in the contract?

What will be an ideal response?

One of the most important assets a company may have at its disposal is management talent, which it can transfer internationally, primarily to its own foreign investments. Management contracts are a means by which a company may transfer such talent—by using part of its management personnel to assist a foreign company for a specified period for a fee. The company may gain income with little capital outlay. Contracts usually cover three to five years, and fixed fees or fees based on volume rather than profits are most common. A company usually pursues management contracts when it believes that a foreign company can manage its existing or new operation more efficiently than it can. With management contracts, the host country gets the assistance it wants without needing direct investment. In turn, the management company receives income without having to make a capital outlay. A management contract may also allow the supplier to gain foreign experience, increasing its capacity to internationalize.