International Trade Licensing

Everything You Need to Know About International Trade & Licensing

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Licensing is a business arrangement in which one company gives another company permission to manufacture its product for a specified payment. An international licensing agreement allows foreign firms, either exclusively or non-exclusively, to manufacture a proprietor’s product for a fixed term in a specific market.

Trade License is a license or permission issued by municipal corporation granting permission to carry on a particular business at a particular address. It ensures that the citizens are not adversely affected by health hazard and nuisance by the improper carrying of trade.

Advantages and disadvantages of Licensing

Licensing is a very attractive method for entering a target market if a company has valuable intellectual property. It involves minimal initial costs and provides companies with regular income from overseas.

It enables a company to enter a market that has restrictions on foreign companies. The licensor company benefits from the licensee company’s local market knowledge. The licensor company gains a market stronghold very rapidly. The licensor company’s capital is not tied up in foreign operations. The licensor company has the option to expand into the market further by investing in the licensee company at a later date. The licensor company can move into several markets at one time.

Entry into the target market is limited. Licensing may create technology dependence on the supplier, who could choose to not renew a licence agreement, to negotiate licence agreements with competitors, to limit the markets in which you may use the licensed technology or to limit the acts of exploitation allowed under the licensing agreement. The terms of the license must be monitored over the lifetime of the agreement, and enforcement might become necessary. 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 licensee’s business needs.

The overseas licensee is responsible for all risks and expenses involved with production, distribution and marketing. However, the licensing agreement must be monitored and enforced if necessary and it will not be possible for the company to withdraw from the market rapidly.

Licensing will not be suitable if the company cannot cope with the risk that its intellectual property will be lost or that it might be increasing levels of competition in the future

Ideal Conditions for Licensing

What are your company’s goals?  The strategic objective is to expand market share. The company must not require large profits from international trade.

What’s the size of your company?  Any size of company is suitable. What resources do you have?  The company must be able to devote time and resources to locating licensees, negotiating contracts and monitoring the licensee. It does not want to, or is not able, to devote substantial monetary resources to international trade.

The product or service must be patented intellectual property and must be in demand in an international market.

What type of compensation is acceptable to you?  The company must be happy with periodic payments based on a percentage of sales by the licensee.

What competition do you face?  There should be no competing companies in the market because the product, process or service is patented. However, the company must be comfortable with the potential for competing companies to steal its intellectual property. The market should ideally have a low level of competition. Do you have access to intermediaries?  The company must work with a reputable law firm experienced in international trade to negotiate and develop the license agreement.

What level of control is acceptable to you?  The company does not need to have substantial control over production, marketing and selling activities. What is the total cost of investment?  The company wants to avoid having to invest substantially in international trade. How quickly can you bring your product to market?  The company wants to enter a market rapidly.

Can your company handle the risk?  The company must be able to deal with the risk of business losses from theft of intellectual property. Can your company lock into a contract?  The company must be able to remain in the trading relationship for a set period of time. financially lucrative market entry strategy. To be successful at licensing you need a high-demand product or service, limited competition and the willingness to give up control of some of the promotional and logistical aspects of selling your commodity.

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