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Licensing in International Business

The document discusses advantages and disadvantages of market entry through licensing. Some advantages include gaining additional revenue, accessing new markets with minimal risk, and preparing for future investments. However, licensing also has disadvantages like lower income potential, loss of control over operations, and the risk of reputation damage if a licensee performs poorly.

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Trân Nguyễn Ngọc Bảo
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22 views1 page

Licensing in International Business

The document discusses advantages and disadvantages of market entry through licensing. Some advantages include gaining additional revenue, accessing new markets with minimal risk, and preparing for future investments. However, licensing also has disadvantages like lower income potential, loss of control over operations, and the risk of reputation damage if a licensee performs poorly.

Uploaded by

Trân Nguyễn Ngọc Bảo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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Advantage and disadvantage of market entry: Licensing

Additional Revenue Stream: One major advantage of international licensing is the


opportunity to earn extra income by sharing technical expertise and services with licensees.
This additional income can significantly boost a company's existing revenue sources.

Access to New Markets: Licensing allows businesses to reach new markets that may not be
accessible through direct exports from their current facilities. This expansion can greatly
increase their global reach and customer base.

Swift Expansion with Minimal Risk: For companies looking to expand rapidly while
minimizing risk and financial investments, licensing is an appealing choice. It offers a fast
track to international markets without requiring substantial financial commitments.

Preparation for Future Investments: Licensing can act as a stepping stone for future
investments in foreign markets. It provides companies with an opportunity to test the waters
and assess market conditions before making more significant commitments.

Market Retention Amid Trade Restrictions: In cases where established markets face trade
restrictions, licensing can be a viable means of maintaining a presence in those markets,
ensuring business continuity.

Reduced Political Risk: Licensing arrangements often involve locally-owned licensees,


reducing political risk. This can be particularly attractive to companies venturing into
international business for the first time

Disadvantage
Lower Income Potential: Compared to other market entry methods, licensing typically offers
lower income potential. The royalties and fees generated from licensing agreements may not
match the revenue achievable through alternative approaches.

Loss of Control: Licensing involves giving up control over the licensee's manufacturing and
marketing operations. This can lead to concerns about maintaining quality standards and
consistent brand identity, potentially harming a company's reputation.

Risk of Reputation Damage: Partnering with an incompetent licensee can risk damaging a
company's trademark and reputation. Subpar products or services can reflect poorly on the
licensor.

Potential Competition: Over time, the foreign licensee may become a competitor by
marketing its products in regions where the parent company also operates. This competition
can lead to conflicts and challenges for both parties.n

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