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INTERNATIONAL MARKETING 6e
Export Intermediaries,Licensing,
and Franchising
Chapter 9
Copyright? 2001 by Harcourt,Inc,All rights reserved,9-2
Licensing
Licensing is one form of foreign market entry
More engaging than exporting
Less risky than foreign direct investment
Could cause lose of product control
It has proponents and opponents
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Licensing
The licensor permits the licensee to use its
intellectual property (an intangible) in
exchange for a royalty payment.
Advantages of licensing
No capital investment,knowledge,or marketing
strength
Huge profit potential,recovered costs
Minimal risk of government intervention
A stage in internationalization
Preempt market entry before competition
Increasing intellectual property rights protection
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Licensing
Disadvantages of licensing
Licensee controls marketing function and licensor
does not gain expertise in local market
No guarantee of entry after license expires
Licensee may become local and international
competitor of licensor
No extension of license permitted by local
government
Licensee may create quality control and
marketing problems for licensor
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Issues in Negotiating Licensing Agreements
Rights conveyed to licensee
Product and/or patent rights
Compensation paid to licensor
Transfer costs for technology and maintaining the
agreement
R&D costs for developing the technology
Opportunity costs for exports or investments
Methods of compensating the licensor
Running royalties (percentage of sales)
Up-front payments,service fees
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Issues in Negotiating Licensing Agreements
Compliance by licensee
Export control regulations
Confidentiality of the intellectual property and
technology provided
Record keeping and provisions for licensor audits
Dispute Resolution
The choice of law for contract interpretation
– Third country or arbitration
The choice of legal forum
Termination
Government regulations in the licensee’s market
will determine these terms.
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Trademark Licensing
Companies trade on their names and
characters as a substantial source of
worldwide revenue
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Franchising
A licensing arrangement where the licensor
grants the licensee the right to do business in
a prescribed manner.
The franchisee benefits from the reduced risk of
implementing a proven concept
The major forms of international franchising
Manufacturer-retailer systems (Ford,Toyota,or
Mercedes-Benz)
Manufacturer-wholesaler systems (Coca-Cola,
Pepsi Cola)
Service firm-retailer systems (Holiday Inn,
Wendy’s,KFC)
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International Franchise Expansion
Reasons for the growth
Market potential
Financial gain
Saturated domestic markets
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International Franchise Expansion
Problems in franchising
Needs a high degree of
standardization
Protection of the total business system
from copycat competition
Government intervention
Selection and training of franchisees
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Governmental Perspective on Franchising
Franchising does NOT
replace exporting
export jobs
require large outflow of
foreign exchange…
the bulk of profit remains
in the country.
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Export Intermediaries
specialize in bringing firms or their products
and services to the global market.
cover the international marketing knowledge
and performance gaps of firms
provide contacts with buyers abroad,call on
customers,and handle delivery of goods
Examples of facilitating intermediaries
Export Management Companies (EMCs)
Webb-Pomerene Associations
Trading Companies
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Export Management Companies (EMCs)
Domestic firms that specialize in performing
international marketing services as
commission representatives or distributors
As commission representatives
Develop foreign marketing and sales strategies
Establish contacts abroad
As distributors
Purchases products from the domestic firm,takes
title to goods and assumes all trading risks;
operating internationally on their own.
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Export Management Companies (EMCs)
Compensation for EMCs
Fee or retainer for market development
Compensation for direct expenses of foreign
market penetration
Discounted pricing from the manufacturer
Power conflicts between EMCs and clients
Retaining firm as client
once market presence
is established
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Webb-Pomerene Associations
Associations of firms which are legally
permitted under an antitrust exemption to
cooperate in market allocation,quota fixing,
and selection of distributors and brokers in
international markets so long as such
activities do not reduce competition within the
United States.
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Trading Companies
Early trading companies
East India Company of the Netherlands
British East India Company
French East India Company
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Trading Companies of Today
The sogoshosha of Japan
Sumitomo,Mitsubishi,Mitsui
Reasons for the success of the sogoshosha
Development of information systems to identify
market opportunities
Economies of scale in the vast transaction volume
to obtain preferential treatment
Large internal global markets creating
opportunities for barter trade
Access to vast quantities of capital on a global
scale
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Export Trading Companies in the U.S,
ETC legislation has improved the
performance of small- and medium-sized
firms.
An ETC can
deliver a wide variety of services.
be an agent.
purchase products.
act as a distributor abroad.
An ETC must balance the demands of the
market and the supply of the members to be
successful.
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Export Trading Companies in the U.S.
Bank participation in ETCs allows ETCs
better access to capital
more trading transactions
easier receipt of title to goods
a wide variety of possible structures
Possible activities for ETCs in addition to
exporting
Importing
Countertrade
International management and consulting
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Service Requirements for American ETC’s
Requires a Less-
Than-Average
Capability in
Promotion,Market
Contact,and
Consolidation
Requires a Above-
Average Capability
in Promotion,but an
Average Capability
in Market Contact,
and Consolidation
Requires a Above-
Average Capability
in Promotion,
Market Contact,and
Consolidation
Requires a Less-
Than-Average
Capability in
Promotion,but an
Average Capability
in Market Contact
and Consolidation
Products Exported
Suppliers
Represented
Low Export
Volume
High Export
Volume
Undifferentiated Differentiated