It also allows companies to tap into the expertise of foreign manufacturers who may be able to produce the product more efficiently or at a lower cost than the company could on its own. First and foremost, an apparel firm seeking to become a licensor must evaluate whether an international licensing arrangement will enhance and improve the companys brand. You may not require a licence to play music in certain areas or to sell food on the street, but obtaining one brings security. The innovation may have a greater chance of getting to market faster because a larger, more experienced company will be handling the commercialization. A license is an agreement by which a licensee leases the rights to legally protected intellectual property to a licensor the company that owns or represents the property for use in connection with a product or service. Licensing acts as a kind of loudspeaker, amplifying a brands message to target audiences at a time when brand owners are sorting through the many communications paths available to them in todays marketing ecosystem. Licensing 3. Also, apparel enterprises run the risk of creating or strengthening a potential competitor should they decide to enter that market on their own in the future. The integration of national economies into a global economic system - otherwise known as globalisation - has been one of the most important developments over the last century, prompting an extraordinary swell in international trade, commerce and production.. These include: For example: Under the licensing system, Coca-Cola and Pepsi are produced and sold worldwide by local bottlers in various countries. Deciding the accurate time to enter . If the arrangement does not work out and the licensor wants to terminate the agreement before the expiration of the term, clearly defined termination provisions need to be included in the agreement. This field is for validation purposes and should be left unchanged. There is no doubt that licensing in multiple global markets has significant benefits for companies that are unable or unwilling to invest abroad or export their products, but before developing multinational campaigns, licensors should keep an eye on a number of key issues, such as the many cultural, linguistic, legal and financial differences that exist in different fields. On average, sales grow faster, more jobs are created, and employees earn more than in non-exporting firms. What are some of the changed purchasing behaviors that we are witnessing this year? What is an industrial design? Royalties based on gross sales or net sales are generally favored by both licensors and licensees. What is the Difference Between Attrition & Turnover? All rights reserved. How the licensing industry is already responding to consumer concerns about climate change and demands for sustainability is a good road map for how licensing can support a brand owners position on other important issues such as health, anti-racism and the economy. The conclusions stemming from all of this are clear to engage with consumers, companies need to take positions against racial injustice or the health crisis or other issues such as climate change. For example, say part of your brand story includes individually made products by female creators. Ultimately, it depends on how brands choose to deliver their brand message. No matter what, youre going to compete for shelf space (or digital space in ecommerce) and consumer attention, but competitive research will ensure your brand can stand on its own. Licensing has a very important role to play in this new world order. A well thought out international licensing strategy, incorporated into a written license agreement, is a key tool in implementing a successful international strategic licensing program. The graph is followed by a brief description of the most important segments of the industry. 2. 2. Messages about their products or services, their equities, targeted at the consumers with whom they want to engage. Global thinking involves the ability to understand markets beyond one`s home country and requires knowledge of the political and economic situation in the country where a license is to be granted. There are several advantages of foreign licensing. International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational scale.. You don't need to do anything to generate those revenues either. What about other positions that brand owners are taking? In other words, they can skip the brand development and R&D stage and forgo that initial investment. International business examples and what makes them successful Discover the process of international licensing, essential considerations, and various pros and cons. for adequate consideration and under specified conditions. The agreements also help to ensure that the licensor's intellectual property rights are respected and that the licensee will pay royalties for the use of the technology. Does your brand clearly resonate with your target demographic? All Rights Reserved. Advantages and Disadvantages of Licensing 15.3 Describe the advantages and disadvantages of licensing. Organizations may approach you, or vice versa, but either way, you need to position yourself as an established business to ensure the best brand licensing opportunities. The main advantage of international licensing is that it allows companies to enter new markets without incurring the high costs associated with setting up their own manufacturing and distribution operations in that country. Get unlimited access to over 88,000 lessons. For example, the licensor may agree to a release of obligation in exchange for the licensee agreeing to pay a higher royalty rate. This is because they will have access to your technology and may be able to reverse engineer it. The licensee creates and distributes a product with existing recognition and reputation. 3. Undoubtedly, now is a unique time for brands licensors and licensees to communicate their values and leadership, and to take meaningful actions for the public good. The termination provisions should inform the parties of what happens at the time of termination and should concern the return of all proprietary documents to the licensor. Then, youd work with a partner organization that would create, distribute, market or sell items under your brand name. The licensor (inventor-owner) does not have to finance the commercialization process. In all cases, the licensor will need to retain audit rights to verify the accuracy of the licensees accounting for royalties and other financial obligations. In a time, such as now, when it is imperative for brand owners to communicate with consumers about their positions on issues of the day, licensing and licensed products can help deliver that message; licensing is a path to the consumer and to brand/consumer engagement. Advantages Licensing affords new international entrants with a number of advantages: Licensing is a rapid entry strategy, allowing almost instant access to the market with the right partners lined up. The specific change that I want to address is the change in consumers expectations of brands and how brands have to pivot to show up in new ways. Chapter Introduction. The licensor will not have execution risk (though if the licensing agreement is based on sharing revenue from the licensees commercialization of the technology, some execution risk remains for the licensor). The need for Licensing Intellectual Property - IIPLA - International The recent U.S. Presidential election, where voters were almost evenly split, proves how polarized we are on issues of the day. lessons in math, English, science, history, and more. What Is International Business? - Forbes Advisor Even with a lawyer in your corner, you still need to do your due diligence before licensing your brand. Licensing intellectual property increases a company's ability to grow its business, launch new products and services, and expand into a wider range of geographic markets. The duration of the license, and any renewal provisions, need to be clearly set forth in the agreement. Putting the brand into the hands of an overseas licensee requires proper due diligence, as there is potential for brand damage. The fundamental reason behind international business is that the For more thought leadership pieces from Michael Stone, visitBeanTalk.Follow me onTwitterorLinkedIn. While weve already established the foundational reasons why brand licensing is beneficial, there are other more specific advantages for small business owners. These are the three primary reasons why you need to license your business: Recognize your company and ensure you are accountable for your activities To ensure public safety and health To keep track of your finances for tax considerations Who Is Required to Have a Business License? To reap these benefits of licensing, licensees must align their company with the actions that are being taken by the brand owner and brand owners must give their licensees the guidance and support that they need to be effective. Check outmywebsite. There are several things companies should keep in mind when considering foreign licensing, such as jurisdiction or arbitration, advance against royalty agreements, method of payment, release of obligation, and termination. Specifically, it is the simplest form of business alliance in which a company rents its product-based knowledge in exchange for market entry. 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Since the brand is the most important product, in addition to making sure translated materials are accurate and properly credited, a licensor should always take the time to register its trademarks and copyrights in the countries in which it plans to license its products. And I can also imagine a day when licensors will insist on contractual provisions that align the licensee with the licensors positions on other issues. Business licenses not only hold companies answerable for their actions and behavior but also keep the health and safety of the public in check. 6. And most importantly, how do you navigate the business licensing process so you scale your business while still protecting all that youve built? Thousands and thousands of products, all featuring, via license, famous names and logos, names and logos that consumers . There are several different reasons why a foreign licensing agreement might be terminated. succeed. Licensees must meet the expectations not only of their licensors when it comes to sustainability, but also must meet the expectations of retailers and, most importantly, of consumers. Technology transfer (TT) is a collaborative process that allows scientific findings, knowledge and intellectual property to flow from creators, such as universities and research institutions, to public and private users. After thoroughly assessing the new markets potential, compile a list of promising licensee candidates. The method of payment refers to both the currency in which royalties will be paid, as well as the method of payment itself (i.e., wire transfer, check, etc.). Psychological Research & Experimental Design, All Teacher Certification Test Prep Courses, Communication & Decision-Making in Global Business, International Trade Management & Regulation, Breaking Into Foreign Markets: International Marketing Strategies, What Is Contract Manufacturing? Copyright 2023 Buchalter, A Professional Corporation. How can information obtained from patent databases be useful in the economy? Depending on the circumstances, either of these choices may be more advantageous for the parties involved. PESTEL, Globalization, and Importing. If we in the licensing industry recognize that our goal is not only to sell a lot of product but also to communicate with consumers, to engage them, to entangle with them, to deliver the brand message, then we have a significant opportunity right now as well as in a post-pandemic world. 1. You can connect with her on. And 37% claimed to have switched brands or used a new brand as a result of the way it responded to the pandemic. Is there enough demand within your target demographic as well as growth potential? Customers will more readily trust a company this is licensed, even if your specific company isnt required to obtain one. To unlock this lesson you must be a Study.com Member. Another method of calculating royalties is to use gross profit, whereby the cost of goods sold is subtracted from gross sales, which generally includes directly allocable expenses, such as manufacturing expenses, raw material costs, and direct labor costs. Some brand licensors are taking the lead by creating specific sustainability targets and guidelines for their licensees, such as The Coca-Cola Company, PVH and Disney. It is important to note that termination of a foreign licensing agreement can have serious consequences. Definition: A business arrangement in which one company gives another company permission to manufacture its product for a specified payment. The U.S. Commercial Service Strategic Partnership Program can also help companies identify and develop relationships with foreign manufacturers and distributors. It is also important to understand and limit the time commitments involved from a creative and management point of view, and that the right person in the company is responsible for the international bachelor`s degree program. I write about brands and brand extension strategies. Entangle with your consumers with the right message, help satisfy their expectations of the licensed brand, take the right actions, and you will drive sales and, probably, also do some good in the world. Some agencies can help companies find suitable manufacturing and distribution partners in foreign countries. If you sell food or sell a product that touches the human body, for example, if you own nail salon, you will be required to have a specific licence as well as be required to pass an annual inspection. I mentioned earlier how consumer attitudes towards factory standards have driven changes at brand owners as well as in their licensing programs. So, how do brand licensees align their companies with the brand owners positions and avoid failure when taking a stand? The duration of the agreement is negotiable. 5 Importance of Having Business License - schooldrillers.com Third, companies must make the investment to engage the company in actions to support the chosen position and company internal values must align with the position that you want to take. In modern times, foreign licensing agreements have become an important tool for companies to generate revenue from their intellectual property and to expand their businesses into new markets. Your brand is your baby. Provisions prohibiting licensees from sublicensing or selling into other territories should be included as well. Competitive Advantage. This means that the licensee will pay the licensor a lump sum of money upfront. Beyond importing, international expansion is achieved through exporting, licensing arrangements, partnering and strategic alliances An international entry mode involving a contractual agreement between two or more enterprises stipulating that the involved . Seven Considerations for International Licensing - Buchalter Term and termination. 7. Scenario Planning and Analysis. For the past several years, it has become clear that consumers (Millennials and Gen-Z, in particular) want brands to stand for something, have a purpose, take a position about societal, environmental, cultural and political issues of the day and purpose-driven marketing strategies were, as a result, gaining in importance. To maximize results, each participant in the permitting process has certain responsibilities. Use this cheat sheet: With business licensing, you can increase your brands reach without worrying about the manufacturing, production, and often even marketing (depending on the agreement). 3. Going into business with someone is a serious decision, and you want to make sure its a fit for both sides. International licensing ( foreign licensing) is defined as the process of granting a company the right to manufacture, market, and sell another company's products in a foreign country. 5. We are living, consuming and thinking differently in fundamental ways. A licensor that licenses its technology to a local company in a foreign country is likely to benefit from the following as well: 1. Key issues to address include: which products and trademarks are covered, the royalty arrangements and design fees, whether the arrangement is exclusive or nonexclusive, and the definition of the design and approval relationships relating to the products and product promotions. After meeting a prospective licensee, preferably in person, try to work with the prospective licensee on a trial basis if possible, and trust your intuition. With respect to the health crisis, the recent 2020 Edelman Trust Barometer (Trust Barometer Special Report: Brand Trust and the Coronavirus Pandemic, Edelman, March 2020), based on interviews with 12,000 people in several countries, concluded that consumers expect brands to protect the financial security of employees and suppliers, provide reliable information about COVID-19, and be creative and compassionate in the way that they take action with respect to COVID-19. CAGE Analysis. Once you reach success, it might be hard to give the reins over to another organization that you know nothing about. It takes time and resources. 2. The parties will need to agree on a method for determining the royalty base (i.e., the sales price of the product). Making a corporate commitment to a purpose can be difficult and challenging, particularly given the economic obstacles many companies face at this particular time. There really is no alternative. Today, the pandemic, the economic slump, the Black Lives Matter movement, climate change and more, are each reinforcing how important brands are to consumers and how entangled brand and consumer have become. Then you need to dive into a fair amount of research to ensure youre in a good position to grow your brand via licensing. In response, brands have increasingly taken public positions on and actions related to sustainability, gun violence, gender inequality and sexual harassment, among other important issues. This is because many companies claim to be able to sell products internationally, but do not have the necessary experience or infrastructure to do so. This refers to the way that the licensee will keep track of sales and royalties. Companies are willing to pay substantial sums of money to use another company's intellectual property in their own products and services. Approvals and other controls. Licensees of a brand owner should be following the brands lead. Why Export? - International Trade Administration Licensing Intellectual Property 101: What Every Entrepreneur and This protects both you and your customers in case any incidents occur. And when it comes to determining how to license a business and how to do it properly, you cant simply consult a lawyer. For a brand owner, licensing offers a way to achieve any or all of these goals without having to make significant upfront investments in the development and manufacture of in-house products. Perhaps, thats a fair debate. Licensing is defined as the granting of permission by the licenser to the licensee to use intellectual property rights, such as trademarks, patents, brand names, or technology, under defined conditions. What conditions constitute grounds for early termination of the licensing agreement? The royalty payments are typically a percentage of the sales of products that are made using licensed technology. Ian Kinnery, founder of coaching firm Kinnery, tells Business Matters about the inspiration behind his business and how he uses his own business experiences, including dealing with mental health problems, to help entrepreneurs. Is the brand staking out a position and taking action on the health crisis, racial injustice, gender inequality, climate change or some other important issue? All of these questions and feelings are completely natural and understandable. Will you or your licensee be responsible for defending your IP? And with any position a brand takes, some consumers will applaud what the brand is doing while others will be offended. Definition: Licensing is defined as a business arrangement, wherein a company authorizes another company by issuing a license to temporarily access its intellectual property rights, i.e. manufacturing process, brand name, copyright, trademark, patent, technology, trade secret, etc. An example of foreign licensing would be if a company in the United States granted a company in China the right to produce, sell, market, or use its products and services in China.

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