Strategies for Reaching Global Markets: Licensing

Strategies for Reaching Global Markets: Licensing

In todays increasingly competitive and continuously evolving global business environment, many businesses are searching for new ways to reach the global market. While large corporations have been competing globally and outsourcing to foreign economies for a period of time now, many small businesses are beginning to enter the global scene in an effort to remain competitive and fuel greater revenues. There are many different ways to access the global market through a number of different strategies, but this article will focus on product licensing, and how entrepreneurs can make use of licensing in order to become more efficient, keep overhead low, and still realize considerable profit margins.
The act of licensing is paying royalty fees to a foreign manufacturer in order to produce goods under a companys trademark. In essence, you are allowing a foreign company to produce your products. Generally, a company representative will meet with the foreign manufacturer in order to set up a licensing agreement. The benefits of licensing include decreased costs of production and the eliminated hassle of managing a local production facility. Often, a licensing agreement will still allow the company, or licensor, to oversee distribution, promotion, or consulting, and other aspects of the business.
Foreign licensing agreements have been very profitable for a number of todays larger corporations, including Nike, Coca-Cola, and even Walt Disney. In China, many of Disneys theme park operations are overseen and operated by a Tokyo company, and Disney simply collects management and consulting fees for the operations. While licensors often spend little money to enter into a licensing agreement, and still has the ability to generate revenues, there are still a number of disadvantages for the licensor.
Many times, licensors must enter into a licensing contract for an extensive period of time, sometimes twenty years or longer, and if the product experiences rapid growth during this period of time, the majority of the profits belong to the licensee. For this reason, a carefully crafted licensing agreement is often needed. Perhaps one of the biggest disadvantages of licensing for many companies, however, is based on the fact that through consulting, the company is actually selling its technology and expertise to the offshore licensee.
When a foreign company has the ability to learn the methods and practices of the licensor, there is often the threat that the licensee will break the contract or agreement and begin manufacturing the product on its own. Although the licensee is prohibited from using the trademark or company name of the product, many of these companies are often able to produce the same products under a different name. One of the clearest examples of this can be seen with the increase in knock off or OEM products being produced in China and then marketed back to the US and other countries. American companies have sought to minimize the damage of this within the US by attempting to restrict the sale of these kinds of goods in the US.

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