The level of risk of the licensor is low because there is zero or next to zero investment is involved. The licensure process demands an extra measure of competence and dedication. Licensing is a business arrangement in which one company gives another company permission to manufacture its product for a specified payment. Sometimes the company, who is licensing your product, will give you a portion of the expected royalty as an advance payment. Each state regulates the age and requirements necessary to apply for and receive a drivers license. For this right, the dealer pays a fee for the right to sell the trademarked goods of the producer. Jul 24, 20 if youre the owner of some ip, licensing it to other parties is a significant source of income from it, and can often be the easiest way.
One good way to do this is evaluating its advantages and disadvantages. Advantages and disadvantages of international licenslng by homer 0. The original company called the franchisor enters into a contract with a second business called the franchisee in which the original company offers the second business the right to operate under the original businesss name and the right to sell. Limits political risk and risk of expropriation disadvantages. Licensure, first of all, is the mark of a professional. Advantages and disadvantages of licensing as a mode of entry into foreign markets assess the merits and demerits of international licensing as a mode of entry into new markets disney does not have to produce tshirts, usb sticks and even waffles with mickey mouses happy face on it. Obtain extra income for technical knowhow and services. Disadvantages of licensing for the licensee the licensee may have made a financial commitment for a technology that is not ready to be commercially exploited, or that must be modified to meet the licensees business needs. The appeal of a business format franchise is understandable. Oct 20, 2018 the disadvantages to this type of structure include a concentration of risk and a loss of operational flexibility. Advantages and disadvantages of licensing as a mode of.
You need to understand what you are getting into as a joint venture could restrict the activities of your whole business. If you do not enjoy admin, then perhaps being part of a corporations ownership is not. Thomas king is a graduate of the university of pittsburgh school of law where he served as managing editor of the pittsburgh journal of environmental and public health law. What are the advantages and disadvantages or using licensing as a market entry tool. Licensees also enjoy lowered risk because theyre usually entering the marketplace with a known quantity and a builtin customer base.
Advantages and disadvantages to franchising your business. Quick, easy entry into foreign markets, allowing a company to jump border and tariff barriers lower capital requirements. Advantages of licensure national society of professional. A licensing agreement can be beneficial because both parties get the chance to earn profits. The products, services, and business operations have already been established.
Other firms cannot copy the patents or trademark given to licenseefranchisee. It can also be detrimental if a license is overextended or one of the parties acts in bad faith. Disadvantages of licensing patents it can take a lot of effort and determination to find the right licensee. So this is an extremely important topic that does require some evaluation.
Licensee has greater market knowledge being a local person. Advantages of licensing there are numerous advantages in entering into a licensing agreement with a foreign national. Improves knowledge absorption and retention students develop and practice problemsolving strategies across different levels of play or contexts provides immediate feedback to help players adjust. This article analyzes the main advantages and disadvantages of licensing, but primarily in the context of technology licensing, which generally cover patents. Advantages and disadvantages gamification in education. The licensees rights are dictated by the agreement, but can include rights such as selling the item or using the trademark on his own products.
Companies can have rather complex structures, where finances, rules and regulations and shares are all linked together in a way that can be difficult to understand. Licensing 96 advantages provides additional profitability with little initial investment provides method of circumventing tariffs, quotas, and other export barriers attractive roi low costs to implement disadvantages limited participation returns may be lost lack of control licensee may become competitor licensee may exploit company resources. What are some of the ways that a firm can reduce the risk of losing its proprietary knowhow to foreign companies through licensing agreements. This is a contractual arrangement whereby a company transfers the right to distribute or manufacture a product or service in a foreign country, or the right to use any type of expertise that may include patents, trademarks, company name, technology and technological knowhow, design and or business methods.
Licensing requires very little capital outlay making it an accessible channel even to small companies and it should provide a. Licensing generally involves allowing another company to use patents, trademarks, s, designs, and other intellectual in exchange for a percentage of revenue or a fee. In this the licensor or does not make any investment in other country. Another interesting licensing example comes from americas sweetheart, the girl scouts. However, they enjoy a lot more freedom than franchisees. While not all engineers find licensure mandatory for their chosen career paths, the pe initials after their names can provide many advantages. Advantages and disadvantages of licensing as a mode of entry into foreign markets 1882 words 8 pages. Advantages and disadvantages of international licenslng. Therefore, from a business perspective, it is important to weigh the advantages of licensing against its disadvantages in comparison with other alternatives for commercializing. What are the advantages and disadvantages of licensing and management contracts compared to producing abroad. Advantagesdisadvantages of licensing as a mode of entry into foreign markets executive summary the paper analyse the vantages and disadvantages of the licensing as a mode for entry to the foreign market. There is a higher likelihood of success since a proven business formula is in place. International franchising advantages and disadvantages. There are advantages and disadvantages to licensing for both parties to consider before finalizing their agreement.
Depending upon the nature of the business, this could mean adding additional retail. Advantages and disadvantages of companies or corporations. People with different beliefs, tastes, and preferences can get in the way big time if left unchecked. The amount of royalties set by the state granting a compulsory license cannot. For licenses such as drivers licenses, the benefits are obvious. The answer will depend and vary depending on who you are and what your goals are. The following is a general description of the various growth strategies, including the advantages and disadvantages to each. A business may increase growth by building additional outlets regionally, nationally, or internationally. Advantages and disadvantages of subscription pricing. Blair vice president, patents and licensing itek corporation lexington, massachusetts i. Licensing arrangements the pros and cons tcii strategic. If you are the owner of an intellectual property, then licensing it is an opportunity to create an ongoing stream of passive revenues.
It can take a lot of effort and determination to find the right licensee. Franchising allows aspiring entrepreneurs to start a new business without incurring the same level of risk as a brandnew venture. Sep 19, 20 sometimes the company, who is licensing your product, will give you a portion of the expected royalty as an advance payment. Lets take a look at some important benefits for a company like megans.
A clash of cultures and management styles may result in poor cooperation and integration. If you go the royalty route, your continuous payments royalties could last for many years depending on your agreement. The advantages and disadvantages of franchi s ing this memorandum, produced for a number of our clients considering franchising, brings together a bullet point list of the advantages and disadvantages both business and legal of. Bankers usually look at successful franchise chains as having a lower risk of repayment default and are more likely to loan money based on that premise. Running your own business is a cornerstone of the american dream. The advantages and disadvantages of franchising by david e. Let us look at some of the disadvantages of the joint venture that mentioned below. However, the disadvantages also tag along in the process. To give your product the greatest chances of success, you should put a lot of thought into evaluating potential licensees and structuring your licensing agreement.
Licensing agreements are used whenever the owner of an item, such as an invention, a trademark or product, wants to give someone else the right to use and deal with that item. Im back with some advantages and disadvantages of gamification in education. What are the advantages and disadvantages or using. May, 2017 advantages of licensing for an individual. While the mechanism of licensing provides enterprises with a wide variety of possibilities for improving their market position, it has its pitfalls and risks. Licensing what in discussions of licensing, whether international or domestic, we must first decide what are we licensing. Other potential risks and downsides to patent licensing include. Advantages of licensing reduces development costs and risks of opening a foreign market. Another interesting factor of the perception of price is raised here, and its the idea that subscription pricing will affect the operating expenses budget, while licensing fee pricing comes out of the capital expenses budget, which explains the skewed perception customers might have of the advantages and disadvantages of the pricing models.
Analysis of advantages and disadvantages of fdi in addition to fdi, the firms are also able to expand foreign market by means of exporting and licensing. Advantagesdisadvantages of licensing as a mode of entry. Improves knowledge absorption and retention students develop and practice problemsolving strategies across different levels of play or contexts provides immediate feedback to help players adjust to learning challenges sumdog is. Advantages of international franchising franchising is a unique form of business arrangement. Licensing and management contracts versus producing abroad. Advantages and disadvantages of licensing patents patents are a big capital investment for small or startup businesses. Business decisions are very much embedded in a sociological context, in which culture and communication play a major role. Under volume licensing, customers get additional product use rights and the right to copy software onto multiple devices from one standard image using volume licensing media. Give the advantages and disadvantages of licensing and.
Does not want to develop the business applications of an intangible property. As i make calls to manufacturers, ive been thinking about the many benefits of licensing, and specifically those for artists and manufacturers in the industry who are commonly referred to as the licensor and licensee, respectively. Holmes northern california office s outhern california office 555 chorro street, suite d2 6621 pacific coast hwy. Instead, it can license the right to use its famous character to different companies around the. There must be an incentive to invent because commercialization of new ideas involves money and effort 8. A company that owns rights in a patent, knowhow, or other ip assets, but cannot or does not want to be involved in the manufacturing of products, could benefit from the licensing out of such ip assets by relying on the better manufacturing capacity, wider distribution outlets, greater local knowledge and management. Give examples of companies from different countries that use licensing as a global marketing strategy. The girl scouts uses different cookie bakers around the country, but the organization then licenses its name and its cookie types for use in ice cream, cupcakes, even candles. Nov 21, 2018 world intellectual property organization. What are the advantages and disadvantages of licensing. Learn vocabulary, terms, and more with flashcards, games, and other study tools. You can switch careers easily when changing industries, which is now commonplace for most entrepreneurs. Advantages and disadvantages of franchising the benefits of franchising are similar to that of licensing.
If you dont have the money to manufacture or sell your own product, or you simply choose not to, you can license it to someone else. The franchisor does not incur the cost of developing branch locations that is the responsibility of the franchisee, though there is generally required some level of training and support. A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. Allows licensor to circumvent tariffs, quotas, or similar export barriers 3. There are innumerable advantages of the joint venture. However, there are many other potential advantages to licensing out ip that may be less evident. A company that owns rights in a patent, knowhow, or other ip assets, but cannot or does not want to be involved in the manufacturing of products, could benefit from the licensing out of such ip assets by relying on the better manufacturing capacity, wider distribution outlets, greater local knowledge and management expertise of another. Aug 03, 2018 if you are planning to engage in this kind of venture, you should determine first if it provides you and the society with maximum benefits. A license grants a party the legal right to engage in specific acts. Licensing is a popular method for domestic firms to profit from foreign markets without the need to commit sizable funds. It is a more affordable method of stepping into international business as the licensors or franchisers dont need to pour too many funds abroad. Current adoption policies pave the future for parental licensing criteria. Licensing establishes businesses and individuals as reliable and trustworthy but leaves them subject to regulations and with little control over markets and even personal conduct.
What are the advantages and disadvantages of having a. Licensing is a relatively flexible work agreement that can be customized to fit the needs and interests of both licensor and licensee. Volume licensing offers customers benefits that outweigh those offered by full packaged product, or fpp, and original equipment manufacturer, or oem, licensing solutions. I suggest that your understanding licensing benefits from the perspectives of the licensor artist, brandtrademark owner, cartoonist. The advantages and disadvantages of licensing can be managed when due diligence by both parties is performed before agreeing to anything. The following are the main advantages and reasons to use an international licensing for expanding internationally. Other types of licenses allow an individual to do something like hunt or.
The disadvantages to this type of structure include a concentration of risk and a loss of operational flexibility. Under this, dealers were given the right to distribute goods for a manufacturer. Growing your system means increasing the number of employees youll need to assist franchise owners and make the franchise company itself run smoothly. Jun 28, 2019 licensing and franchising share a few similar advantages. The advantages of licensing agreement include increasing market share, lowering capital requirements, increasing the return on investment, and decreasing financial and legal risks. One of the biggest advantages for a licensor is that it allows you, the creative genius behind your invention, to continue to do what you love. The pros and cons of licensing technology by toni hickey, william barrow and charles harris. Advantages and disadvantages about the author with features published by media such as business week and fox news, stephanie dube dwilson is an accomplished writer with a law degree and a masters in science and technology journalism. Let us look at some of the disadvantages of the joint. Without a drivers license, you cannot legally drive a vehicle. Advantages and disadvantages of franchising your business from a management perspective.
Franchising, licensing, contract manufacturing pros and cons. Disadvantages of licensing limits the firms control over production, marketing and strategy to required to realize experience curve and location economies limits the firms ability to coordinate strategic moves across countries crosssubsidization. Advantages and disadvantages of franchising and licensing advantages. Advantages of foreign licensing so what are the advantages of using a foreign licensing agreement. Those with a unique business idea and the right amount of drive and capital tend to build their own company from the ground up, while others prefer to enter the business arena by buying into a well. The second is forward vertical fdi in which an industry abroad sells the foods of a firms domestic production processes. For example, if a company enters a foreign market through a wholly owned subsidiary, it has to rely on the subsidiary to develop a distribution channel, recruit a sales force and establish a customer base. Many licenses are required for the safety of the public. Likewise, as you add locations, more employees will come under the umbrella of your brand.