How International Licensing Can Grow Your Business 10 Times
International licensing is what you need to hear about if you are thinking of expanding your business overseas.
A time comes in every business owner’s life when they have established a brand in their own country and want to expand their company. Everyone wants to grow their business and get their brand known nationally and internationally.
With the surge of interest for social media, making your brand known across the whole world has become way easier. But only knowing isn’t enough. You need to have your products ready if in case those international viewers want to become your customers.
So to solve that without any cost for setting up manufacturing units, marketing, production etc, we have Licensing for International Business aka International licensing.
What is Licensing
A business arrangement in which one company gives another company permission to manufacture its product for a specified payment.
Yes it might not be as profitable as it could be if you are setting up your own manufacturing units, production and marketing expenditure. But that’s only possible for big business owners.
If you have a small to medium business, international licensing is the best way to grow and expand your business and make your brand known internationally.
Licensing lets you instantly tap the existing production, distribution and marketing systems.
You don’t have to spend a penny in the production and distribution. You get a percentage of the revenue from products or services sold under your license.
Licensing fees typically correspond to a small percentage of the gross or net sales price but can add up quickly.
About 90 percent of the $160 million a year in sales at Calvin Klein Inc. comes from licensing the designer’s name to makers of underwear, jeans and perfume. Infact, the only merchandise the company makes itself are its women’s apparel lines. Interesting right?!
IBM, after energizing its efforts to license its thousands of technology patents a few years ago, now attributes $1 billion a year of its corporate sales to licensing.
But there are many downsides to licensing too. We shall discuss that later in the post.
Licensee– The party receiving the intellectual property is called the licensee.
Licensor– The party providing the intellectual property is called the licensor.
What is International Licensing?
An international business licensing agreement involves two firms from different countries, with the licensee receiving the rights or resources to manufacture in the foreign country. Rights or resources may include patents, copyrights, technology, managerial skills, or other factors necessary to manufacture the good.
So basically you are giving the patent or license to some manufacturer in a different country and receiving royalty fees in return. A really cost effective method for businesses to flag their plants overseas.
- Generating extra income.
- Reaching new markets not accessible by export from existing facilities.
- Quick Brand expanding without much capital investment and risk.
- A nice start to check how profitable it would be to expand in the respective new market.
- Political risk is minimized as the licensee is usually 100% locally owned.
- Comparatively lower income than in other entry modes.
- No control over marketing and production that might lead to loss of quality.
- Risk of having the brand name ruined by poor and incompetent partner.
- The foreign partner becoming a competitor in places where parental company already has a presence.
So in the end, you have to weigh the cons and pros and see if you want to expand your business and if it’s worth it or not.
5 Things to Keep In Mind Before International Licensing
1. Brand Identity: The licensor cannot be flexible or loose about it. You have to evaluate whether an international licensing arrangement will enhance and improve the company’s brand.
The company has to be sure that the licensee can live up to the agreed upon quality and reputation and help strengthen the brand Identity.
2. Choosing a licensee: After you have assessed the potential of the new market, it’s time to carefully select the promising licensee candidates.
If it’s possible to work on a trial basis for some time, try doing that just to get an idea what the quality of product would be.
3. Approval control: The licensor will want to include provisions in the agreement allowing the licensor to inspect the manufacturing units and the quality of products produced on a timely basis.
4. Payments and Royalties: Most of the income of the licensor in international licensing depend on royalties. This royalty fee maybe fixed or varied depending on the number of sales and other factors.
5. License Grant: One of the important steps is to define the products and trademarks to be covered and the rights to be granted in the license agreement. The licensor can have the control of including and excluding certain products and trademarks.
International Licensing can help a small business expand it’s territory and make their business known across the world. Whether and how much profitable it’ll be for you, carefully assess that before indulging in international licensing.