Licensing and franchising in international business. What is the difference between licensing and franchising? 2019-01-14

Licensing and franchising in international business Rating: 4,6/10 1648 reviews

Differences Between Licensing & Franchising Agreements

licensing and franchising in international business

Legal implications Franchising is covered by securities law because the franchiser controls how the franchisee conducts business. Another example of licensing is a software licence, such as for Microsoft Office. Extending a brand globally through franchising involves low risk, requires minimal investment, and offers a huge upside potential for scaling capabilities. In addition, there are firm-specific factors such as growth targets, attitudes to risk, desire for control and available resources that also require consideration. However, identifying the conditions that best attract such investment flow is difficult, since foreign investment varies greatly across countries and over time.


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LICENSING & FRANCHISING

licensing and franchising in international business

The United States of America is much larger again — and each of the aforementioned countries have per capita income much greater than New Zealand. The switch trader gets the sugar from Party B at a discount and sells it for money. It can also be referred to as an international corporation. Most importantly, organizations the franchisers lose a great deal of control. Licensing, on the other hand, is less prescriptive as it covers many possible business arrangements. While it is a faster and cheaper mode of entry, it ultimately results in a profit share between the franchiser and the franchisee.

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Franchising vs Licensing

licensing and franchising in international business

The best place to look for getting started is the. Partnering with businesses in other industries can mean a lot of new, long-term customers for you. For help to create, identify, protect, and defend your business assets. When companies offshore products and services, those jobs may leave the home country for foreign countries at the expense of the wealth producing sectors. People often assume that the difference between these two terms matters little, yet if you get it wrong you could be exposing your business to hefty fines in some jurisdictions. Licensing a product means you allow someone else to use your intellectual property, logo or design in exchange for fees. Because they are servicing multiple customers, they can offer reduced costs in acquiring raw materials by benefiting from economies of scale.

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Licensing & franchising

licensing and franchising in international business

An outsourcing deal may also involve transfer of the employees and assets involved to the outsourcing business partner. For some businesses, there may be patents, too. There are several ways of entering the global arena to serve the foreign market; that helps to earn better returns for the company. If you are considering whether or not to go into business for yourself, but not by yourself, we are confident that you will find a number of franchise systems that might be a good fit for you. About the Author Leslie Bloom has worked in upper-level management positions in both publishing and the mental health field. Franchising is an arrangement in which the franchisor permits franchisee to use business model or brand name for a fee, to conduct business, as an independent branch of the parent company franchisor. It is a good that is brought in from another country for sale.

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Licensing arrangements

licensing and franchising in international business

The licensee will provide the majority of the infrastructure in most situations. A franchise agreement will usually give the franchisor the ability to control how the business is run. The contract manufacturer will quote the parts based on processes, labor, tooling, and material costs. Please seek permission to reproduce the same in public forms and presentations. A licensing agreement lets another business uses your trademarks and logo. In order to circumvent this strategic barrier, the licensor finds a local sports drink manufacturer to license their recipe to. Some of those companies are publicly concerned about the fact that damage to the brand as a whole, could impact their business, and that they have little power to prevent it.

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Definition of Licensing and Franchising

licensing and franchising in international business

Although there is a big disadvantage of this arrangement, lack of quality control, a basic belief of franchising is that the brand name indicates its quality to consumers. Party A promises to make a future purchase of sugar from Party B. Ultimately, short term and long term successes are both important. It is a large corporation which both produces and sells goods or services in various countries. Licensing and franchising agreements should not be entered into lightly. International franchising is a strategic way to reduce dependence on domestic demand and. .

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Differentiate between Licensing and Franchising.

licensing and franchising in international business

In franchising, an organization the franchiser has the option to grant an entrepreneur or local company the franchisee access to its brand, trademarks, and products. For that reason, franchise agreements contain strict quality control provisions. After few years, once the know-how is transferred, there is a risk that the foreign firm may begin to act on its own and the international firm may therefore lose that market. What You're Selling With a licensing agreement, you're selling your brand. They take longer and cost more to set up than licenses.

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Types of International Business

licensing and franchising in international business

The process is purchased as a service. A small fraction of the smuggled goods and illegal services may nevertheless be included in official trade statistics through dummy shipments that serve to conceal the illegal nature of the activities. It can also apply to the use of , e. A franchise agreement will usually give the franchisor the ability to control how the business is run. Typically, this will cover know how and other confidential information, trademarks, logos and designs, and copyright materials.

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Licensing & franchising

licensing and franchising in international business

What you don't want to do is to enter into a licensing agreement with someone in the same industry as you, since you will then create your own competition. The father of modern franchising was the inventor of the sewing machine, Isaac Singer. While the law is certainly important, it is not the central thing to understand about franchising. Multinational corporations are important factors in the processes of globalization. That includes training, quality control, marketing strategy and operations support. Another example would be a clothing manufacturer like licensing its designs and brand in a certain country to a local company. If you franchise, you have to deal with heavier regulations than a licensing agreement.

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Franchising vs Licensing

licensing and franchising in international business

Such adaptations are necessary from country to country due to numerous differences in areas such as local pricing, customer needs, preferences and buying habits, disposable income, demand size, industry structure, legal requirements etc. Examples Examples of franchises include McDonalds, Subway, 7-11 and Dunkin Donuts. Big businesses are often both a franchisor and a licensee. However, in specific cases, national accounts impute changes of ownership even though in legal terms no change of ownership takes place e. When two or more persons come together to form a partnership for the purpose of carrying out a project, this is called a joint venture. The definition is important because franchises are covered by securities law while licenses are covered by contract law.

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