Describe the merits and demerits of licensing method of entry into the foreign market
Answers
In addition:
Licensors with experience in the field of research and product development may find it more efficient to license out new products rather than take up production themselves.
Licensing out may be used to gain access to new markets that are otherwise inaccessible. By granting the licensee the right to market and distribute the product, the licensor can penetrate markets it could not otherwise hope to serve.
A licence agreement can also provide a means for the licensor to gain rights in improvements, know-how and related products that will be developed by the licensee during the term of the contract. However, this cannot always be demanded as a matter of right by the licensor and in some countries there are strong restrictions to the inclusion of clauses of this type in licensing agreements.
An infringer or competitor can be turned into an ally or partner by settling an IP dispute out of court and agreeing to enter into a licence agreement.
A licence may be essential if a product sells best only when it is incorporated in, or sold for use with, another product, or if a number of IP assets, for example, patents owned by different businesses, are required simultaneously for efficient manufacturing or servicing of a product.
Last but not least, a licence agreement allows the licensor to retain ownership of the IP and at the same time to receive royalty income from it, in addition to the income from its own exploitation of it in products and services that it sells.Disadvantages of licensing for the licensee
The licensee may have made a financial commitment for a technology that is not 'ready' to be commercially exploited, or that must be modified to meet the licensee's business needs.
An IP licence may add a layer of expense to a product that is not supported by the market for that product. It is fine to add new technology, but only if it comes at a cost that the market will bear in terms of the price that can be charged. Multiple technologies added to a product can result in a technology-rich product that is too expensive to bring to market.
Licensing may create technology dependence on the supplier, who could choose to not renew a licence agreement, to negotiate licence agreements with competitors, to limit the markets in which you may use the licensed technology or to limit the acts of exploitation allowed under the licensing agreement.