International Marketing

Chapter 13

Licensing
Franchising &
Export
Intermediaries
 Licensing & Franchising

Outline……

Significance of Licensing & Franchising
 Licensing: promises, Problems, & Issues
 U.S. Regulations for Licensing
 Negotiating Licensing Agreement:
Some Principal Issues
 Trademark Licensing
 Franchising: Concept, Types, & Issues
 Impediments to international franchising
 Licensing & Franchising
Significance of Licensing &
Franchising
 Alternative Export Strategies
 Entry Strategies
 Rapid entry
 less Risky
 Less requirements for capital & Expertise
 take Advantage of Local Expertise
 suitable for All size Firms
 Licensing & Franchising
Licensing:
“Under a licensing Agreement, One firm, the
licensor, Permits another firm, the licensee, to use
its intellectual property in exchange for
compensation designated as royalty.”

“Licensing amounts to exporting and importing

intangibles.”

It includes:
 Patents, Trademarks, Copyrights
Technology, Know-how, Specific Skills
 Licensing & Franchising
Licensing: Promises
 An Entry/Export Strategy needs less Capital &
Knowledge of Market
 Cover R&D costs Quickly
 Reap benefits of Patents before Expiry
 Avoid host country regulations
 Used as Preemptive strategy for emerging
Markets + Negotiate Parallel Contracts
 Expanding the Product/Brand Life Cycle
 Focus on Core competencies
 Get back Stolen intellectual property rights
 Enter in export/DFI restricted Market
 Licensing & Franchising
Licensing: Drawbacks & Issues
 Older Technology is capitalized
 Insufficient IM expertise/insights for
subsequent Foreign Market penetration
 creates own competitors
 Extensions are usually not permitted by
many foreign Governments
 Quality control, production & Marketing,
becomes an important concern
 Bilateral restrictions
 Licensing & Franchising
Licensing: US Regulations
 Restriction on resale
 Tie-out: Restriction to sell competing
Products
 Price Restrictions
 Other Restrictions pertain to Payments
 Tie-in: (e.g. Coke …the ingredients)
 Offering only the group of Patents rather
than individual patent
 Base royalties on a measure other than
sales (of patented products )
 Licensing & Franchising
Licensing: US Regulations
 US national security considerations:
technology & Technical/sensitive data

Licensing: National Regulations

Foreign involvement, Forex restrictions,
govt. notification, approval of licensing
terms, has right to ask royalties & set
payment ceiling
 Licensing & Franchising
Negotiating Licensing Agreements:
Principal Issues

 A. Scope of the Rights conveyed

 B. Compensation
 C. Licensee Compliance
 D. Dispute Resolution
 E. Term & Termination
 Licensing & Franchising
Negotiating Licensing Agreements:
Principal Issues

A. Scope of the Rights conveyed

Product &/or Patent rights:
involved specifying technology,
know how, the format, & Guaranties
Example:
Whether manuals will be translated
into licensee’s language?
 Licensing & Franchising
Negotiating Licensing Agreements:
Principal Issues

B. Compensation. . .
 Costs to cover by Licensor:
1) Transfer & maintenance costs
2) R&D costs
3) Opportunity costs
 Licensees attitude:
 Licensing & Franchising
Negotiating Licensing Agreements:
Principal Issues

B. Compensation. . .
 Change in scenario for US Firms
Maturing technologies
Intensifying competition among suppliers
Growing sophistications among licensees
Greater involvement by Govt.
 Licensing & Franchising
Negotiating Licensing Agreements:
Principal Issues

B. Compensation. . .
 Method of Compensation
Running Royalties
Service Fees
Disclosure Fees
Capitalized as part of Cooperative venture-
Payments are received as profits/Dividends
 Licensing & Franchising
Negotiating Licensing
Agreements:
Principal Issues

C. Compliance
Licensing & Franchising

Q & A