licensing

Definition:
Method of controlling, restricting or recording the number of suppliers or a product or service and/or the amount produced or sold. Its economic effect varies depending on how restrictive it is. If used simply to record, it has little effect on supply and price. At the other extreme it may be used to replace the market mechanism. In INTERNATIONAL MARKETING licensing involves a company with marketable technology, in the form of general know-how, patents or even a trademark or brand name, exporting this intangible (rather than the product) for the payment of royalties. The company is really licensing a foreign manufacturer to produce a firm's products rather than exporting them. A company may choose this alternative to exporting if capital is scarce since in theory licensing avoids the necessity of expenditure in terms of money or effort overseas, or if the company lacks market knowledge. Alternatively, it may be necessary to license rather than lose a market where exporting or local manufacture is not possible, due to import restrictions or sensitivity to foreign ownership. The advantage of licensing is that royalties are paid for no investment and limited expenses. There is no immediate risk involved. However such advantages may be short-term, in addition to greater potential returns from other forms of international marketing being precluded.

Cross-References:
[international marketing]

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