International Licensing: Everything You Need to Know
In particular, international licensing has the power to expand these opportunities to a global scale, and is not limited to the business owner's home country.3 min read
International licensing is a vital concept for business owners to understand, as there are few methods of growth that are more profitable, or faster, than licensing assets in your business through patents, copyrights, trademarks, designs, and additional forms of intellectual property. In particular, international licensing has the power to expand these opportunities to a global scale, and is not limited to the business owner's home country.
What Is Licensing?
Under law, any form of intellectual property may be protected to ensure others do not profit from your ideas or business assets without your express permission. Licensing is a means of granting that permission while establishing a set rate of compensation you will receive in exchange for allowing someone else to profit from your creation. It generally involves a fixed fee or a percentage of any revenue earned through the use of your intellectual property.
The licensing agreement is a form of business arrangement that formalizes this and allows one business to grant permission to another for the manufacture of a product the former owns, in exchange for a specified sum. Licensing will generally involve the extension of permission to use a trademark, design, patent, or copyright that is exclusively owned by a single business.
The Benefits of Licensing
This is an extremely fast and efficient way of generating extra revenue for your business, as it doesn't require you to manufacture or sell anything new - you receive passive revenue from assets in your business that already exists, and it is the responsibility of the other party to complete any work involved in marketing or delivering what's involved through their own infrastructure and pipelines.
Although the percentage of sales you receive from licensing is generally small, it can very quickly add up to a substantial amount of the volume involved is high.
For example, Calvin Klein Inc. generated $8.9 billion in revenue in 2017, and roughly 90 percent of that comes from licensing. While the Calvin Klein company only manufactures a limited range of women's apparel, their brand name is licensed to other manufacturers who produce a huge array of perfumes, underwear and jeans in their name.
While the percentage of revenue per item Calvin Klein receives is small, the volume involved is extremely high, resulting in a large amount of revenue for the company every year.
How International Licensing Allows Access to New Foreign Markets
International licensing is particularly effective for business ventures as it provides an easy method of penetrating new and foreign markets without any financial outlays. Provided you are selective about the companies you grant licensing agreements to, ensuring they are reputable, it offers a risk-free form of expansion.
As a result, international licensing allows you to expand your brand into fresh companies and geographic markets. It also lets you take advantage of new channels of distribution which would be unavailable to them under other circumstances without the extension of major investments into new machinery, manufacturing processes, or facilities. At the same time, control of the brand remains entirely the privilege of the licenser.
The Brand Identity Benefits of Licensing
International licensing has many great brand benefits, including:
- Higher visibility
- Greater brand recognition
- Expanded consumer base
It is, however, essential that a business assesses their situation prior to embarking into licensing agreements. It's important to establish whether entering into licensing arrangements will enhance your brand and improve it, or dilute it and diminish its exclusivity.
Giving permission to international businesses to use your brand has the potential to damage your brand, especially in areas that are overseas, where you may not have a base, presence, or regular access, making it difficult to monitor how your brand is being used.
It's important to ascertain the quality of the business to whom you are granting a license, and be certain they are capable of creating and delivering products that are as high-quality as your own standards require. At the same time, be sure their own brand and business goals are compatible with your own, allowing you to become partners who further each other's business interests and brand identities.
Another branding factor to consider is the extent to which you are strengthening another brand. If they are competitors, this may act against your own brand in the long term and should be avoided.
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