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Licensing and Franchising

Licensing and franchising are arrangements that allow firms to use intellectual property or business systems owned by other firms. Licensing involves granting use of intellectual property in exchange for royalties, while franchising grants use of an entire business system. Examples include pharmaceutical firms engaging in cross-licensing, and convenience stores, food, and beverage brands operating in international markets through licensing agreements with local firms. Advantages for licensors are low investment and involvement, while disadvantages include less control and potential creation of future competitors. Franchising typically transfers a total business method in a longer-term arrangement, with the franchisor providing assets and expertise and the franchisee performing local functions.

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818 views11 pages

Licensing and Franchising

Licensing and franchising are arrangements that allow firms to use intellectual property or business systems owned by other firms. Licensing involves granting use of intellectual property in exchange for royalties, while franchising grants use of an entire business system. Examples include pharmaceutical firms engaging in cross-licensing, and convenience stores, food, and beverage brands operating in international markets through licensing agreements with local firms. Advantages for licensors are low investment and involvement, while disadvantages include less control and potential creation of future competitors. Franchising typically transfers a total business method in a longer-term arrangement, with the franchisor providing assets and expertise and the franchisee performing local functions.

Uploaded by

William Dalton
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Licensing and franchising

Licensing: an arrangement in which the owner of intellectual property grants another firm the right to use that property for a specified period of time in exchange for royalties or other compensation. Franchising: an arrangement in which the firm allows another the right to use an entire business system in exchange for fees, royalties or other compensation

Examples of licensing
Pharmaceutical firms engage in cross-licensing practices in which they exchange scientific knowledge about producing products and distribution rights. Service firms in retailing, fast food, car rentals, television programming, and animation rely on licensing and franchising agreements. 7-Eleven is the world's largest chain of convenience stores, with about 26,000 stores in 18 countries. While the parent firm in Japan owns most of the stores, several thousand in Canada, Mexico, and the U.S. operate via licensing or franchising agreements

Peter Paul Mounds and Almond Joy are owned by the British food firm Cadbury Schweppes and produced in the U.S. via a licensing agreement with Hershey Inc. Planters, Sunkist, and Budweiser are owned by U.S. firms and sold in Britain and Japan via licensing agreements with local firms. Coca-Cola has a licensing agreement to distribute Evian bottled water in the U.S. on behalf of the brands owner, French company Danone. A review of 120 of the largest multinational food companies revealed that at least half are involved in some form of international product licensing.

Advantages and disadvantages


Advantages for licensor Low investment Low involvement Low effort, once license is established Low-cost initial entry strategy Disadvantages for licensor Performance depends on the licensee Licensor has limited control over its asset(s) abroad Risks creating a future competitor.

Franchising
Most typical arrangement is business format franchising, in which franchisor transfers to the franchisee a total business method -- including production and marketing methods, sales systems, procedures, training, and the use of its name. More comprehensive and generally longer-term than licensing. Master franchiser is an independent company authorized to establish, develop, and manage the entire franchising network in its market. E.g., McDonald's in Japan.

Parties involved in franchising


Franchisor: provides vital assets has economies of scale, a wealth of intellectual property, and know-how about its own industry Franchisee: performs local functions in foreign markets, such as marketing and distribution, that the franchisor usually cannot perform. has entrepreneurial drive, deep knowledge about the local market and how to run a business there.

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