Exchange of rights, such as manufacturing rights, to another in exchange for payment Possible offered rights:

Product or process patent Manufacturing know-how is not subject to patent Technical advice and assistance Marketing advice and assistance Trade mark Trade name

Licensing is another way in which the firm can establish local production in foreign markets without capital investment. It differs from contract manufacturing in that it is usually for a longer term and involves much greater responsibilities for the national firm, because more value chain functions have been transferred to the licensee by the licensor.

A licensing agreement is an agreement where in the licensor gives something of value to the licensee in exchange for certain performance and payments from the licensee.

    

A patent covering a product or process. Trademarks Rights. Copyrights Know how on products or processes Marketing advice and assistance

Lump sum Minimum royalty A running royalty Share of sales / profit

Licensor firm will remain technologically superior in its product development Licensor is too small to have financial, managerial or marketing expertise for overseas investment Product is at end of product life cycle in advanced countries but stretching product life cycle is possible in less developed countries Opportunity for profit on key components Government regulations may restrict foreign direct investment or, if political risks are high, licensing may be only realistic entry mode Constraints may be imposed on imports

It requires no capital outlay and thus need not deter even small companies It is often the quickest and easiest way to enter a foreign market. The firm gains access to local market knowledge, thus avoiding the problems of adjusting to the foreign economic and cultural environment which come establishing its own foreign operations. A fourth advantage is that many foreign government favor licensing over direct investment because licensing brings technology into the country with fewer strings and costs attached to it.