Advantages/Disadvantages of Licensing As a Mode of Entry into Foreign Markets

Executive Summary

The paper analyse the vantages and disadvantages of the licensing as a mode for entry to the foreign market. Business decisions are very much embedded in a sociological context, in which culture and communication play a major role. Licensing is a means of establishing a support in overseas markets, without the need for large capital expenditures. Patent rights, trademark rights and rights to use particular process technology and foreign licenses are granted. It is a preferred strategy for small and medium enterprises (especially those committed to advanced technology), but in no way limited to such companies. It is a fact that with the manner of entry mode, companies often faces both advantages and disadvantages of the impact of licensing for foreign market entry. However, there are various possible strategies that a firm may adopt when they have decided to enter in to a new market.

Advantages/Disadvantages of Licensing As a Mode of Entry into Foreign Markets

Introduction

The market entry strategy framework encompasses various services that are put together for helping the customers in order to enter to a new market. These services can be delivered separately truly depending on the needs and stage in the internationalization process. Licensing is a contractual arrangement whereby the firm, the licensor, offers proprietary assets to a foreign company, the licensee, in exchange for royalty fees (Schirmer, 1996, 28-31).

Firms traditionally face barriers to enter the market. This is widely studied in the literature but different nuances from this subject can be analyzed. If there is uncertainty associated to the fact that a firm enters a new market, larger levels of risk may be present when firms enter markets in different countries, where the presence of cultural differences may undermine the success of the new venture.

Discussion and Analysis

Business decisions are very much embedded in a sociological context, in which culture and communication play a major role. To that extent, an important barrier to enter international markets can be cultural differences that may undermine the process of entering the market of the success of the international venture. The modes of entry refer to the process the firm decides to enter the market. The modes of entry include: Exports (direct or indirect), contractual methods (licensing and franchising); and direct foreign investment (jointly with other companies, or wholly owned subsidiaries). Thus, cultural distance and psychic distance are two concepts that are widely used in the international business literature (Shen, 2001, 76-81). A large number of studies use both concepts interchangeably with no clear distinction between them.

Market Entry Strategy

Access to Foreign Markets

There are several ways to address export, through direct and indirect methods. The exporter can insert your product in foreign markets through sales:

National clients who then export the product.

abroad through intermediaries

by licensing

Directly outside.

Indirect Methods

In the case of sales to domestic customers, it is the buyer who decides which product can be sold in a foreign market, taking on ...