7.3 Licensing – Core Principles of International Marketing

Licensing is defined as the granting of permission by the licenser to the licensee to use intellectual property rights, such as trademarks, patents, brand names ... ="http://www.w3.org/2000/svg"viewBox="00512512"> Skiptocontent 7.3Licensing LearningObjectives Afterreadingthissection,studentsshouldbeableto… definelicensing explaintheadvantagesanddisadvantagesofinternationallicensing Licensinggivesalicenseecertainrightsorresourcestomanufactureand/ormarketacertainproductinahostcountry. Licensing Licensingisabusinessarrangementinwhichonecompanygivesanothercompanypermissiontomanufactureitsproductforaspecifiedpayment.Licensing isdefinedasthegrantingofpermissionbythelicensertothelicenseetouseintellectualpropertyrights,suchastrademarks,patents,brandnames,ortechnology,underdefinedconditions.Thepossibilityoflicensingmakesforaflatterworld,becauseitcreatesalegalvehiclefortakingaproductorservicedeliveredinonecountryandprovidinganearlyidenticalversionofthatproductorserviceinanothercountry.Underalicensingagreement,themultinationalfirmgrantsrightsonitsintangiblepropertytoaforeigncompanyforaspecifiedperiodoftime.Thelicenserisnormallypaidaroyaltyoneachunitproducedandsold.Althoughthemultinationalfirmusuallyhasnoownershipinterests,itoftenprovidesongoingsupportandadvice.Mostcompaniesconsiderthismarket-entryoptionoflicensingtobealow-riskoptionbecausethere’stypicallynoup-frontinvestment. Foramultinationalfirm,theadvantageoflicensingisthatthecompany’sproductswillbemanufacturedandmadeavailableforsaleintheforeigncountry(orcountries)wheretheproductorserviceislicensed.Themultinationalfirmdoesn’thavetoexpenditsownresourcestomanufacture,market,ordistributethegoods.Thislowcost,ofcourse,iscoupledwithlowerpotentialreturns,becausetherevenuesaresharedbetweentheparties. Licensinggenerallyinvolvesallowinganothercompanytousepatents,trademarks,copyrights,designs,andotherintellectualinexchangeforapercentageof revenue orafee.It’safastwaytogenerateincomeandgrowabusiness,asthereisnomanufacturingorsalesinvolved.Instead,licensingusuallymeanstakingadvantageofanexistingcompany’spipelineandinfrastructureinexchangeforasmallpercentageofrevenue. Aninternationallicensingagreementallowsforeignfirms,eitherexclusivelyornon-exclusively,tomanufactureaproprietor’sproductforafixedterminaspecific market. Tosummarize,inthisforeignmarketentrymode,alicensorinthehomecountrymakeslimitedrightsorresourcesavailabletothelicenseeinthehostcountry.Therightsorresourcesmayincludepatents,trademarks,managerialskills,technology,andothersthatcanmakeitpossibleforthelicenseetomanufactureandsellinthehostcountryasimilarproducttotheonethelicensorhasalreadybeenproducingandsellinginthehomecountrywithoutrequiringthelicensortoopenanew operation overseas.Thelicensor’searningsusuallytaketheformofone-timepayments,technicalfees,and royalty payments,usuallycalculatedasapercentageofsales. Batman TheBatmancharacterhasbeenlicensedtomanycompanies,suchasLego. Asinthismodeofentrythetransferenceofknowledgebetweentheparentalcompanyandthelicenseeisstronglypresent,thedecisionofmakinganinternationallicenseagreementdependontherespectthehostgovernmentshowsfor intellectualproperty andontheabilityofthelicensortochoosetherightpartnersandavoidhavingthemcompeteineachother’smarket.Licensingisarelativelyflexibleworkagreementthatcanbecustomizedtofittheneedsandinterests ofbothlicensorandlicensee.Thefollowingarethemainadvantagesandreasonstouseinternationallicensingforexpandinginternationally: Obtainextraincomefortechnicalknow-howand services. Reachnewmarketsnotaccessibleby export fromexisting facilities. Quicklyexpandwithoutmuchriskandlargecapitalinvestment. Pavethewayforfutureinvestmentsinthemarket. Retainestablishedmarketsclosedbytraderestrictions. Politicalriskisminimizedasthelicenseeisusually100%locallyowned. Thisishighlyattractiveforcompaniesthatarenewininternationalbusiness.Ontheotherhand,internationallicensingisaforeignmarketentrymodethatpresentssomedisadvantagesandreasonswhycompaniesshouldnotuseitbecausethereis: Lowerincomethaninotherentrymodes Lossofcontrolofthelicenseemanufactureandmarketingoperationsandpractices leading tolossofquality Riskofhavingthe trademark andreputationruinedbyanincompetentpartner Theforeignpartneralsocanbecomeacompetitorbysellingitsproductsinplaceswheretheparentalcompanyhasapresence KEY POINTS Licensing isabusinessagreementinvolvingtwocompanies:onegivestheotherspecialpermissions,suchasusing patents orcopyrights,inexchangeforpayment. Aninternationalbusinesslicensingagreementinvolvestwofirmsfromdifferentcountries,withthelicenseereceivingtherightsorresourcestomanufacture intheforeigncountry. Rightsorresourcesmayincludepatents,copyrights,technology,managerialskills,orotherfactorsnecessarytomanufacturethe good. Advantagesofexpandinginternationallyusinginternationallicensinginclude:theabilitytoreachnewmarketsthatmaybeclosedbytraderestrictionsandtheabilitytoexpandwithouttoomuchriskor capital investment. Disadvantagesincludethe risk ofanincompetentforeignpartnerfirmandlowerincomecomparedtoothermodesofinternationalexpansion. Terms Licensing: Abusinessarrangementinwhichonecompanygivesanothercompanypermissiontomanufactureits product foraspecifiedpayment. License: Thelegaltermsunderwhichapersonisallowedtouseaproduct. Examples SupposeCompanyA,amanufacturerandsellerofBaubles,wasbasedintheUSandwantedtoexpandtotheChinesemarketwithaninternationalbusinesslicense.TheycanentertheagreementwithaChinesefirm,allowingthemtousetheirproductpatentandgivingother resources,inreturnforapayment.TheChinesefirmcanthenmanufactureandsellBaublesinChina.   TheabovecontentwasadaptedfromBoundlessBusiness.Authoredby:Boundless.Providedby:Boundless.Locatedat:https://www.boundless.com/business/.License:CCBY-SA:Attribution-ShareAlikeunderaCreativeCommonsAttribution-NonCommercial-ShareAlikeLicenseandfromInternationalBusiness. Authoredby:anonymous. Providedby:Lardbucket. Locatedat: . License: CCBY-NC-SA:Attribution-NonCommercial-ShareAlike ImageofLegoBatman. Authoredby:VanessaOshiro. Locatedat: https://www.flickr.com/photos/vosh/2711847160/in/photolist-58CVFw-dGAgJE-7At97t-bds4wz-9aHtcQ-dGuTSK-dcceg5-h4iXL-biKE3B-dU2uq3-dnXsP5-7x4DbG-gbvCFa-e1mUmN-bQc1fK-pC5EXT-ntQkz3-bBhm5G-bAv8rs-bQc1hv-biKDq8-4k9p8a-dGuTp4-dGAhoU-opfeHq-orsEqG-bBhkMJ-aiKxMo-aiGJJZ-aiKxNC-aa8LVZ-biKD84-gbvCBH-bvSHai-c9zKQE-aiKxPo-bWnebX-aiGJJc-aapxdA-dpUwRH-aabA2G-eszrJq-biKDJV-gbv8PU-gbuZRa-eet8z7-bCsCz1-a66HhR-iPxU5r-bjpvre. License: CCBY-NC-SA:Attribution-NonCommercial-ShareAlike PreviousSection NextSection Backtotop License 7.3LicensingbyBABUJOHNMARIADOSSislicensedunderaCreativeCommonsAttribution-NonCommercial-ShareAlike4.0InternationalLicense,exceptwhereotherwisenoted. 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