International Marketing Final Revi

ew LICENSING

* What is licensing?

Licensing is as a contractual arrangement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation.

The licensed asset may be a brand name, company name, patent, trade secret, or product formulation. Licensing is widely used in the fashion industry.

Licensing is a global entry and expansion strategy, with considerable appeal. It can offer an attractive return on investment, provided that the necessary performance clauses are included in the contract. The only cost is signing the agreement and policing its implementation.

* What are the major advantages and disadvantages associated with licensing?

There are two key advantages associated with licensing as a market entry mode.

1. Because the licensee is typically a local business that will produce and market the goods on a local or regional basis, licensing enables companies to circumvent tariffs, quotas, or similar export barriers.

2. Licensees are granted considerable autonomy and are free to adapt the licensed goods to local tastes.

Licensing is associated with several disadvantages and opportunity costs.

1. Licensing agreements offer limited market control.

2. The agreement may have a short life if the licensee develops its own know-how and begins to innovate in the licensed product or technology area.

In a worst-case scenario, licensees — especially those working with process technologies— can develop into strong competitors in the local market and, eventually, into industry leaders.

To prevent a licensor-competitor from gaining unilateral benefit, licensing agreements should provide for a cross-technology exchange between all parties. Overall, the licensing strategy must ensure ongoing competitive advantage.

Special Licensing Arrangements

Companies that use contract manufacturing provides technical...