1. Welcome to class of International Licensing Dr
Welcome to class of International Licensing Dr. Satyendra Singh Professor, Marketing and International Business University of Winnipeg Canada

2. Outline What is International licensing When is it employed
Risks of licensing
Costs of licensing
Elements of licensing agreements

3. What is International Licensing?
It is an internationalization strategy
Quick and relatively low commitment compare to FDI/IJV/Export
Contractual arrangement
Licensor allows licensee to use for a fee
Technology, Patents, Brands, Design, Process
Intellectual property
More complex/technical is licensing of
Foreign banks, insurance companies

4. When is it Employed? If licensor has strategic advantage
Host country restricts import or FDI or both
Additional $ with minimum effort
Test through licensing then  FDI
Does not relate to core competency
Peripheral technology should be licensed
Licensee is unlikely to become competitor
Tech. change is fast, and licensor is ahead of licensee
Prospects of technology feedback is high

5. When is it Employed? If licensee has strategic advantage, too
Licensee gets existing technology
Cheaply
Faster
Less risky than their own R&D
Product design for diversification
To complement production or marketing capability

6. Risks of Licensing… Licensee may be future competitor
Or may act opportunistically
That’s why firms do it internationally to avoid future competitor in domestic markets
So limit the licensee’s market
Introduce clauses…
Licensor loses reputation if licensees’ quality ↓
Usually licensor knows about it after the fact
So spend time to understand licensee before negotiations

7. Risks of Licensing… So, ensure
Licensors’ Profit may not be maximized because
Licensor has indirect access to market
Exchange rate change
Repatriation restrictions by foreign governments
So, ensure
Guaranteed feedback of actual product improvement
Sublicensing, if applicable
Quality control
Contracts are honored

8. Risks of Licensing Intellectual Property (IP) Rights
Some countries do not have IP legislations or do not enforce it.
Infringement of IP is common problem.
So lose $ (eg. CD, music, software…)
So it’s necessary to license to offset IP piracy
If licensed, licensee will take action to stop unlicensed domestic competitor from using the IP
So licensing can be a defensive solution rather than an opportunity for internalization (ie. Reluctant Licensing)

9. Costs of Licensing Costly for licensor; not one-time transaction
Protection of Industrial/intellectual Property
May defend IP in the court of law
Establishing the license agreement (could be complex eg. food vs. medicine)
Searching for suitable licensee
Communications, Training, Equipment testing
Maintaining the license agreement
Back up services for licensee
Auditing  visiting monthly each store of Starbucks from Seattle
Ongoing marketing research
Opportunity costs? (eg. $ lost if exported…?)

10. Unattractive Markets for Licensing
In some countries
licensing must be approved by governments
France, Ireland, Spain…or until regn is complete
If govt limits duration of agreement
Govt does not allow exclusive licensing of a product or in a certain region
It limits competition
Double taxation could be high
In EU, withholding tax + VAT = 50%
Govt. may limits on royalty fee (3-10%)
Governments can change it anytime

11. Elements of Licensing…
No standard form for licensing agreement
It is based on licensor’s experience
Reasons for licensing, and respective roles
No ambiguity  market, profit, product…
Write in Appendix or exhibits or Schedules
We can license on promotion methods, trade secrets, drawing, photos, R&D/lab report…
Geographical limitations
Right to sublicense (yes or no or with some clause)
Flow back clause

12. Elements of Licensing
Usually licensor aim for 25% of licensees’ profit  convert this level to a certain royalty rate/structure
Minimum performance requirement
Minimum royalty
Minimum promotion expenditure
Sales
Number of personnel
Royalty and periodic payment, down payment
Currency of payment
Royalty escalation clause