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One problem that can arise is if the Mexican manufacturer does not comply with the integrity of the manufacturing process to maintain quality. This will lead to a gray market. This might happen if the Mexican manufacturer is not able to charge the same premium as in the home market. Since the U.S. licensor might have established such a good reputation of quality in the U.S. market it is able to command a substantial premium for its product there. In the licensing agreement with Mexico Drill-Bit's should therefore make a provision that if its drill bits are not to standard, it will revoke its licensing agreement with Mexico...
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