Using a business based in a foreign market where a small business wants to grow can be useful in several ways. The foreign company usually has a better understanding of the culture in which it does business and can manufacture and market products that attract a foreign clientele better than a company that doesn`t have that knowledge, says Trade Ready, an international market entry strategist. The most important issues to be addressed include: which products and brands are covered, licensing agreements and design fees, whether the agreement is exclusive or non-exclusive, and defining design and approval relationships in relation to products and product advertisements. If it is a training, additional fees or costs must be indicated. Advertising and other financial obligations must be clearly defined. An international licensing agreement allows foreign companies, exclusively or not exclusively, to manufacture an owner`s product in a specific market for a certain period of time. The foreign company enters into a license agreement with another company based in Germany for a certain period. The two main reasons for entering into the license agreement are: For example: As part of the licensing system, Coca-Cola and Pepsi are produced and sold worldwide by local bottlers in different countries. In May 2018, Nestlé and Starbucks entered into a $7.15 billion coffee license agreement. Nestlé (licensee) has agreed to pay $7.15 billion in cash to Starbucks (the Licensor) for the exclusive rights to sell Starbucks products worldwide (single-serving coffee, tea, sachet beans, etc.) through Nestlé`s global distribution network. In addition, Starbucks receives royalties on packaged coffees and teas sold by Nestlé. With regard to licensing, the licensor has the advantage of entering the international market with low risk.
However, Licensor has little or no control over Licensee with respect to the production, distribution and sale of the Product. In addition, if the licensee succeeds, the company has made a profit and, each time the license agreement expires, the company can find that it has created a competitor. The realm of brand licensing ranges from the rather mundane representation of a company`s logo on a t-shirt to much more sophisticated integrated marketing and product development efforts where a brand expands into new product areas that are seamlessly accessible to consumers. In addition to the licensee`s right to use the property, the licensor assumes several responsibilities that must be fulfilled in order to create a successful licensing program. These include: 1. Brand Identity. First and foremost, a apparel company that wants to become a licensor must consider whether an international licensing agreement will improve and enhance the company`s brand. Putting the trademark in the hands of a foreign licensee requires due diligence, as there is a risk of damage to the trademark. A well-known fashion brand that incorporates its name into natural extensions such as leather accessories, shoes, perfumes or home textiles.
Differences may exist, not only in the language and relative effectiveness of different licensing strategies, but also in areas such as market structures, retail models, legal systems and restrictions, and tax implications. 5. Royalties and Other Payments. Most license agreements include upfront payments, which are typically non-refundable royalties, which are used to compensate Licensor for licensee investigation costs and documentation costs, and which may not be eligible for future royalties. The main source of revenue for the licensor is a royalty, and this royalty may be set or modified based on a percentage of sales or other factors. Royalties are usually structured with minimum payments to ensure that the licensor has a reliable stream of royalties. In licensing, as in other companies, it is clear that we are truly living in the era of the “global economy” for the first time. Countries outside the United States currently account for more than 40% of total global sales of licensed products. Not so long ago, most of the internationally successful properties were created and developed in the United States, and then licensed to international markets. While this still happens often as more and more licensors around the world enter the business or expand existing businesses, a healthy exchange of real estate on the international stage is now common. Creators of new properties, of course, try to focus as much as possible on international attractiveness, as investments in the development and marketing of a property have increased significantly.
The use of internationally licensed properties for a range of products can reduce both marketing costs and the volume of advertising that would otherwise be required for individual promotion of the property. A small business looking to expand into foreign markets often faces financial and cultural barriers that can hinder the success of expansion. Foreign licensing agreements can help a small business expand its product lines to other countries if it is unable to establish and manage overseas manufacturing operations. These agreements offer significant benefits to a small business and can allow it to make money from its ideas and products in the international market while reducing the financial risk of expansion if the company had to try it out for itself. The benefits of licensing can be viewed from two angles: the licensor and the licensee. Another important advantage of licensing international business transactions is that they present a lower risk because the licensee enters the market with an established product and, therefore, the financial and legal risks are lower. This is very attractive for companies that are new to international trade. On the other hand, international licensing is a means of entry into the foreign market which has certain disadvantages and reasons why companies should not use it, since there are: 3. The first step is to define the products and brands to be covered and the rights to be granted in the licence agreement. A licensor may control the scope of the license by including and excluding certain products and trademarks, including exclusivity and territorial restrictions, and by restricting assignment and sublicense agreements. There is no doubt that licensing in multiple global markets has significant benefits for companies that are unable or unwilling to invest abroad or export their products, but before developing multinational campaigns, licensors should keep in mind a number of key issues, such as the many cultural, linguistic, legal and financial differences that exist in different territories. Global thinking involves the ability to understand markets beyond one`s home country and requires knowledge of the political and economic situation in the country where a license is to be granted.
Of particular importance is the understanding of global consumer behaviour and the knowledge of the potential licensee, its needs and capabilities. The scope and sophistication of sports licenses has increased over the past decade and is one of the four largest revenue producers in the world of licenses. In the United States, business is dominated by the four major sports leagues — the National Football League, Major League Baseball, the National Basketball Association, and the National Hockey League — as well as NASCAR. Each of these leagues operates the licensing business on behalf of its teams from a central league office. Other major licensing campaigns involve small professional sports leagues (para. B example, Major League Soccer, Major League Baseball), organizations such as the U.S. Olympic Committee and the National Collegiate Athletic Association (NCAA), as well as major sporting events such as the Olympics and the World Cup. In addition, more than 300 colleges and universities in the United States are involved in college licensing and market their rights primarily in the apparel market, sometimes with very respectable revenues, depending on the performance of their sports teams and the size of the university or college. Fashion licenses are often invisible to the consumer, who does not even consider a third party licensee manufacturing the products that bear the creator`s name.
Of course, in a well-executed and tightly managed licensing program, the brand owner retains strict control over design and quality, and the licensee manufactures to the agreed specifications, thus obtaining a transparent brand image. .