LICENSING VERSUS JOINT VENTURE Now that some of the advantages and disadvantages associated with both licensing

and joint venture as methods of entering foreign markets have been outlined, it would be proper to compare the two methods. Cost of Entry Licensing by its nature remains a lower cost mode of foreign market entry as opposed to joint venture which could be relatively expensive Ease of Entry Licensing is definitely an easier way of entering foreign markets as it may often only require getting a potential licensee and working out the details of the licensing contract with him. Often the potential licensee is one who is already doing business in and has experienced the market to be entered. Joint ventures come with the difficult necessity of building an entirely new company. Speed of Entry Where time is of essence, licensing provides a better option for entry. It does not require waiting to go through possibly lengthy processes of registering a company and getting a certificate to do business, which are often requirements for a joint venture business.

Level of Risk There is less risk involved in licensing than in joint venture. This is because the risks associated with developing a new market are taken over by the licensee in the former case. Contrarily, the joint venture firm must develop its own market and the lack of knowledge about local markets can lead to failure. Future Prospects Joint ventures by their nature hold better prospects for the future. MNEs in a joint venture can use the new business as a better lairing base for developing foreign markets. The level to which licensing can provide this opportunity is limited to the extent to which the licensee is willing to share information with the licensor. Share of Profit Licensing could lead to the lost of substantial revenue/profit to the licensor as was in the case of Tokyo Disneyland. (Rugman et al, International Business, 2006:37) This is because licensing arrangements limit the licensors share of profits to an agreed royalty. Ownership and Control Licensors have little or no control in licensing situations. They could therefore suffer heavy losses due to the mismanagement and negligence on the part of the licensee. In Joint ventures, partners can exercise the required level of control to ensure that product images are not damaged for example. WHEN LICENSING IS PREFERABLE

There are some instances where in spite of the disadvantages associated with licensing it is preferred to joint ventures as an entry method. As a Vent for Surpluses Where a Multinational Enterprise seeks to off-load surplus products it would be better to use licensing and not joint ventures. This is often so when there is no long-term commitment to the foreign market. Difficulty in Entrance There are situations in which a multinational company has little option because of unfriendly regulations, requirements and even restrictions to entering a new market. There are also situations where in spite of the existence of a good market, costs of production make joint ventures unattractive. In such situations, manufacturing could be done elsewhere and licensing used to dell the goods in the place where there is market. Time Some markets provide unexpected opportunities. This is often the case in the production as sales of small arms to conflict areas of the third world. In such situations, it may be unwise to want to establish a joint venture as time is of the essence. Licensing then becomes desirable. Risky and Unstable Markets There are other instances where very good markets come with very high risk levels such as political instability, revolutions, or armed conflicts. Other risks may include unstable economic conditions, such as fluctuating currency values and galloping inflation. Under such situations, licensing is preferable to joint ventures. The Need for Incremental Entrance There are markets that hold only long-term prospects but immediate entrance is a necessary condition for a product to do well in that market. This may be because of the need to take time in making the necessary adjustments in response to higher needs for national responsiveness. Licensing would be preferred in such cases as it would help a multinational enterprise to study the market and make those necessary adaptations. The above are some of the conditions under which licensing is preferred to joint venture for entering new markets in international business.