Licensing And Franchising:
A means of establishing a foothold in foreign markets without large capital outlays is licensing. It is a favorite strategy for small and medium sized companies. International licensing helps a firm from one country (licensor) to permit another firm in a foreign country (licensee) to use its intellectual property such as patents, trademarks, copyrights, technology, technical know-how, marketing skill etc. in return for royal payments. Royal payments or license fee is regulated in most of the countries.
The advantages of licensing are most apparent when: capital is scarce, import restrictions forbid other means of entry, a country is sensitive to foreign ownership, or it is necessary to protect trademarks and patents against cancellation of non-use.
An important risk of licensing is that the licensor may give birth to his own competitor i.e. the licensee can become a competitor after the expiry of the licensing agreement. The only anti-dote that is available to the licensor to pre-empt any potential or actual competition is continuous innovation. Only innovation will provide sustainable competitive advantage.
Franchising is a form of licensing in which a parent company (franchiser) grants another company (franchisee) the right to do business in a specific manner. Franchising can assume various forms such as selling the franchiser’s products, using the name of the franchiser, production and marketing techniques etc. Important forms of franchising are:
1.      Manufacturer- retailer systems e.g. automobile dealership
2.      Manufacturer- wholesaler system e.g. soft drink companies
3.      Service firm- retailer systems e.g. lodging and fast food outlets.
Potentially, the franchise system provides an effective blending of skill centralization and operational decentralization, and has become increasingly important form of international marketing.
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