INTERNATIONAL MARKETING 6e Chapter 9 Export Intermediaries, Licensing, and Franchising Copyright 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc, 6217 Sea Harbor Drive, Orlando, Florida 32887-6777
Copyright © 2001 by Harcourt, Inc.. All rights reserved. Requests for permissions to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt, Inc., 6277 Sea Harbor Drive, Orlando, Florida 32887-6777. INTERNATIONAL MARKETING 6e Export Intermediaries, Licensing, and Franchising Chapter 9
Licensing Licensing is one form of foreign market entry More engaging than exporting Less risky than foreign direct investment Could cause lose of product control It has proponents and opponents Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-2 Licensing Licensing is one form of foreign market entry • More engaging than exporting • Less risky than foreign direct investment • Could cause lose of product control • It has proponents and opponents
Licensing o The licensor permits the licensee to use its intellectual property(an intangible)in exchange for a royalty payment Advantages of licensing No capital investment, knowledge, or marketing strength Huge profit potential, recovered costs Minimal risk of government intervention A stage in internationalization Preempt market entry before competition Increasing intellectual property rights protection Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-3 Licensing The licensor permits the licensee to use its intellectual property (an intangible) in exchange for a royalty payment. Advantages of licensing • No capital investment, knowledge, or marketing strength • Huge profit potential, recovered costs • Minimal risk of government intervention • A stage in internationalization • Preempt market entry before competition • Increasing intellectual property rights protection
Licensing Disadvantages of licensing Licensee controls marketing function and licensor does not gain expertise in local market No guarantee of entry after license expires Licensee may become local and international competitor of licensor No extension of license permitted by local government Licensee may create quality control and marketing problems for licensor Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-4 Licensing Disadvantages of licensing • Licensee controls marketing function and licensor does not gain expertise in local market • No guarantee of entry after license expires • Licensee may become local and international competitor of licensor • No extension of license permitted by local government • Licensee may create quality control and marketing problems for licensor
Issues in Negotiating Licensing Agreements n Rights conveyed to licensee Product and/or patent rights Compensation paid to licensor Transfer costs for technology and maintaining the agreement R&D costs for developing the technology Opportunity costs for exports or investments Methods of compensating the licensor Running royalties(percentage of sales Up-front payments, service fees Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-5 Issues in Negotiating Licensing Agreements Rights conveyed to licensee • Product and/or patent rights Compensation paid to licensor • Transfer costs for technology and maintaining the agreement • R&D costs for developing the technology • Opportunity costs for exports or investments Methods of compensating the licensor • Running royalties (percentage of sales) • Up-front payments, service fees
Issues in Negotiating Licensing Agreements Compliance by licensee EXport control regulations Confidentiality of the intellectual property and technology provided Record keeping and provisions for licensor audits Dispute Resolution The choice of law for contract interpretation Third country or arbitration The choice of legal forum 口 Termination Government regulations in the licensees market will determine these terms Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-6 Issues in Negotiating Licensing Agreements Compliance by licensee • Export control regulations • Confidentiality of the intellectual property and technology provided • Record keeping and provisions for licensor audits Dispute Resolution • The choice of law for contract interpretation – Third country or arbitration • The choice of legal forum Termination • Government regulations in the licensee’s market will determine these terms
Trademark Licensing 575 Companies trade on their names and characters as a substantial source of worldwide revenue Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-7 Trademark Licensing Companies trade on their names and characters as a substantial source of worldwide revenue
F ranching A licensing arrangement where the licensor grants the licensee the right to do business in a prescribed manner The franchisee benefits from the reduced risk of implementing a proven concept The major forms of international franchising Manufacturer-retailer systems(Ford, Toyota, or Mercedes-Benz Manufacturer-Wholesaler systems(Coca-Cola Pepsi Cola Service firm-retailer systems(Holiday Inn Wendy's, KFC Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-8 Franchising A licensing arrangement where the licensor grants the licensee the right to do business in a prescribed manner. • The franchisee benefits from the reduced risk of implementing a proven concept The major forms of international franchising • Manufacturer-retailer systems (Ford, Toyota, or Mercedes-Benz) • Manufacturer-wholesaler systems (Coca-Cola, Pepsi Cola) • Service firm-retailer systems (Holiday Inn, Wendy’s, KFC)
International franchise expansion 强个强个强个的个 Reasons for the growth ° Market potentia :;心 ③ Financial gain Saturated domestic markets Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-9 International Franchise Expansion Reasons for the growth • Market potential • Financial gain • Saturated domestic markets
International franchise expansion 强个强个强个的个 Problems in franchising Needs a high degree of standardization Protection of the total business system from copycat competition Government intervention Selection and training of franchisees Copyright 2001 by Harcourt, Inc. All rights reserved
Copyright © 2001 by Harcourt, Inc. All rights reserved. 9-10 International Franchise Expansion Problems in franchising • Needs a high degree of standardization • Protection of the total business system from copycat competition • Government intervention • Selection and training of franchisees
