Market Entry Strategies:
When entering international markets basic entry choices include:
Licensing is a method that allows companies in foreign markets to make and sell the product of another company for certain period of time. This is referred to as international licensing agreement. Under this agreement, the licensor or the party that holds intellectual property rights to a product gives away some of the rights and even resources to a licensee in a foreign country to make and market this product. This agreement does not require the licensor to go and start business in a new country. Licensor earns by charging commission on sales, fees for technical assistance, and also as a royalty.
Under this mode of foreign market entry, there is definite transfer of knowledge between the licensor and the licensee. The success of this model depends upon the respect shown by the authorities in licensee’s country towards IPR and also upon the ability of the licensee to choose right type of business partners as licensees.
This type of business agreement is considered flexible by the experts as it can add and delete terms to suit the interests
of both the parties.
Advantages of Licensing:
Here are the advantages of this method of making entry in foreign markets.
- You can expect to earn more if you have technical expertise and can also provide services
- You can register your presence in countries where it is not possible to export your products under existing policies
- You can expand in many new areas of the world without requiring capital and without taking risk
- You can defy trade restrictions
- As a licensor, you are risk free
- For the licensee, there is no risk as he owns his business 100%
- This mode is alluring for those who are new to international trade arena
Disadvantages of Licensing:
Despite these advantages, international licensing also has many drawbacks that suggest it is not a totally safe arrangement.
- It does not offer attractive profit margins
- Licensee loses control over the manner in which licensee makes and sells the product thereby causing a drop in the quality
- Licensor runs the risk of losing his reputation and even the trademark
Licensee can create problems by manufacturing similar products and marketing them in areas where the licensor already has a presence