In general, licensing agreements are most often used by brands that have a high recognition value and are marketable. For a license agreement to be beneficial for both parties, the company`s brand image must already be successful and known to a large part of the buyers. Companies can make a foreign direct investment. Foreign direct investment is direct investment in one country by an enterprise established in another country. Investors buy a company in the country or expand the operations of an existing company in the country. One of the benefits of becoming a franchisee is all the benefits of being an independent entrepreneur without the risks of starting a new business. Franchises have the advantage of already being a proven business model with a ready-to-use clientele. Buying a franchise is often much less risky than starting a business from scratch, and while significant costs can be incurred, they can be a lower investment than you had to start your own business from scratch. The definition is important because franchises are covered by securities law, while licenses are covered by contract law.
Some licensing agreements may result in unintentional deductibles. Two of the most well-known brands that enforce licensing agreements are Disney and Calvin Klein. Understanding the importance of licensing and franchising is important if you want to grow your business.3 minutes read Franchising also allows you to locate the brand, products, and distribution systems. This location can respond to local tastes and language by allowing residents to own, manage and employ the business. This high level of integration into the new location can create significant benefits with significantly lower risk than other entry-level models. A franchise is a commercial agreement between a franchisor and a franchisee. The franchisor owns a business. The franchisor sells the rights to its trademark – including goods and services, intellectual property, etc. – to a franchisee who opens a separate branch under the name of that trademark, which is essentially a duplicate of the original business. In a license agreement, a licensor and licensee agree to share a royalty called a license fee for the right to use a company`s patents, trade secrets, or technologies. Access to the site is restricted by the organization that grants it.
A franchisee and a franchisor enter into an agreement to operate a franchise. Another disadvantage of licensing is that many people don`t understand their true purpose. There is a lot of confusion as to when to create a license agreement and when the license agreement touches the legal limit of a franchise. Check with a competent attorney before signing a license or franchise agreement. International franchising and licensing allow companies to effectively use their capital, brand and related intellectual property (including trademarks, patents, know-how, and business and marketing systems) in exchange for royalties and/or product sales. Franchising and licensing reduces the need to invest the company`s resources in expansion by instead recruiting international franchise/licensing partners who a) provide the capital, build local businesses, b) are more motivated than employees to succeed, and c) have significant knowledge of their local markets. Partners, in turn, must adhere to strict brand, business, and operating guidelines. The partners are then rewarded with profits and the franchisor receives royalties and/or product sales in return. While profitable entry and natural localization are distinct advantages, licensing also comes with opportunity costs: many restaurant chains and other well-known businesses operate as franchises. The key to franchises is that no matter which one you visit, it always looks and feels the same, offers the same products and services, and much more. It should also be noted that franchising is a very efficient, cost-effective and quickly implemented expansion strategy.
Franchising requires very little capital investment from the parent company, and the time and effort required to build the stores is similar to that of the franchisee. Therefore, franchising can be a way to grow rapidly nationally and globally. Depending on the destination country, there are a number of areas where the business and the coordinated franchise format require changes. Examples include the business structure for the international relationship, the expansion structure within the target market, the basic business concept including how it is operated, the extent of support services offered, the optimal type and the amount of franchises/royalties, to name a few. If you`re dealing with franchise and licensing agreements, it`s probably because you want to grow your business into a franchise business or lend your brand to another company to use. Knowing the differences between these two trade agreements is essential before entering into a legally binding agreement. The main advantage of licensing over franchising lies in the limits. A license only gives access to the use of certain protected trademarks, nothing more. While this makes the deal limited, it could be all the needs of your business.
It is also important when entering into a license agreement to ensure that you have taken these steps to protect your intellectual property. In a franchise agreement, the franchisor can establish specific guidelines on how the franchisee markets the business, uses brand marks, where the business is located, and how the business operates. In other words, the franchisor can exercise significant control over the franchisee`s business and its operation – as it is essentially an extension of its own business. A common misconception in international franchising and licensing is that a successful franchising program for one country can easily be applied to another country – with great success. This is a strategy used by some companies looking for rapid international growth. But this approach is wrong. What works well in one country can be completely inappropriate – and even catastrophic – for another, as many experiments have shown. It is therefore necessary to research and adapt a country`s franchise format to ensure that it is optimal for the destination country. While the rewards for successful expansion are great, successful international franchisors will invariably require much more financial and administrative investment and time than originally anticipated.
Therefore, business planning is essential to ensure that financial resources and management succession arrangements are sufficient to invest appropriately in international development. The International Office in your country should be contacted for a request. All supporting documents must be attached to the licence application. While some business owners view licensing as a simpler alternative to franchising, it would be misguided. These two types of agreements are legally very different and appropriate in different scenarios. Companies that would make good franchises would not necessarily make good licensing agreements, and vice versa. Let`s take a closer look at how licenses and franchises differ. In addition to licensing, you can also enter a foreign market with limited risks. The intellectual property (patents, trademarks, etc.) of a company in one country can be used by a company in another country under international license. An important first step in the internationalization process is the assessment of export readiness. Exporting is a resource challenge, and successful exporting requires sustained commitment over time. Unfortunately, history is littered with timid and unsuccessful export attempts.
Therefore, it is important for companies to make an honest and thorough assessment of their readiness before exporting. With licensing and franchising, other people market your business for you and pay you for that privilege. In addition to potentially reducing your marketing costs, it can help your business break into new markets that were previously inaccessible. Licensing can be especially beneficial if you want to enter foreign markets, but are also concerned about the risks and costs of development. An agreement between two companies in which one company grants permission to the other company to manufacture its product for a certain royalty is called a licensing agreement. Licensing agreements allow multinational enterprises to grant foreign enterprises rights to their intangible assets for a certain period of time. Since, in this type of entry, the transfer of knowledge between the parent company and the licensee is strongly represented, the decision to enter into an international licensing agreement depends on the respect shown by the host government for intellectual property and the ability of the licensor to select the right partners and avoid competition in each other`s market. Licensing is a relatively flexible work regime that can be tailored to the needs and interests of both the licensor and the licensee. Here are the main advantages and reasons to use international licensing for international expansion: Before choosing licensing as an entry-level strategy, it is important to understand in which situations licenses are best suited. In a joint venture business model, two or more parties agree to invest time, equity and effort in the development of a new joint project. Foreign markets are attractive to local businesses as they are often perceived as a huge and untapped potential – a multiple of the size of the domestic market.
For example, from New Zealand`s perspective, Australia has more than five times the population. Britain resembles New Zealand in terms of land mass, but exceeds its population several times 15. . .