Why Is Licensing Important For Entering The Global Business Market?

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Why Is Licensing Important For Entering The Global Business Market?

2 Answers

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Answer 1

Another way to enter the global market is through licensing, an arrangement in which one organization (the licensor) sells to a second organization (the licensee) the rights to a patent, a brand name, or a product so that the licensee can produce or market the product in another country. A typical arrangement calls for the licensee to pay the licensor a minimum amount, with additional payments based on a percentage of the sales or profits generated by the licensed products. Although the licensor avoids the expense of building factories, hiring employees, and contacting buyers in overseas locations, it does lose some control over how its licensed products are made, marketed, and distributed.

Consider how licensing has allowed Dennis Push kin, founder of Tidy Car in Boca Raton, Florida, to expand his automobile cleaning and polishing business. Rather than personally setting up shop in other countries, Push kin sold licenses that put Tidy Car Total Appearance Centers into SO locations in Denmark, Norway, Sweden, and central Europe. Thanks to these far-flung licensing deals, Tidy Car now draws as much as 20 percent of its revenues from overseas sales. Similarly, Walt Disney licensed the Disneyland name and characters such as Mickey Mouse in a 45-year deal with the builders of Tokyo Disneyland, which opened in 1983. Disney initially invested no money but arranged to receive 10 percent of the ticket sales plus 5 percent of the concession sales, worth about $35 million annually.

Answer 2

There is another way the company can adopt instead of licensing in order to keep the things under control this is an example how can the companies can do a better business and avoid the licensing requirements. This was the case between the Ford and General Motors. In July 2002, Ford Motor Company officially opened in first Russian car factory near St. Petersburg. The factory which cost some 150 million dollars to build is 100 percent owned by Ford and represents the first wholly owned investment by a foreign car maker in Russia.

The factory is tiny by international standards it will employ 800 people and initially will produce 10,000 Ford focus cars a year. By comparison a typical auto plant in the developed world produces 200,000 cars a year by 2007 and if thing go really well Ford plans to increase production to 25,000 cars a year.

If things go well Ford plans to increase production to 25,000 cars a year by 2007 and if thing go really well the plant may ultimately produce 100,000 vehicles a year. If these plans come to fruition it could be a boon for the region. Assembly line workers at the Ford factory will make approximately 229 dollars a moth. Significantly more than the 134 dollars is the average wage in Russia and skilled engineers at the factory may make as much as 600 dollars a moth. Although most imported automobile components face a 25 percent duty in exchange for duty free status Ford has agreed to make sure that 50 percent of all components for the Ford focus come from Russia within five years.