Licensing Agreements Help Foreign Firm

Due to the high cost of domestic labor, many U.S. companies manufacture their products in countries with lower labour costs. This agreement is called International Order Manufacturing Practice by which a company produces products through an independent contractor in a foreign country. or outsourcing External supplier use practices to manufacture all or part of a company`s actual products. A U.S. company could enter into a contract with a local company in a foreign country to manufacture one of its products. However, it retains control over product design and development and puts its own label on the finished product. Most U.S. brands are manufactured in a number of Asian countries, including China, Vietnam, Indonesia and India. Gary Gereffi and Stacey Frederick, “The Global Apparel Value Chain, Trade and the Crisis: Challenges and Opportunities for Developing Countries,” The World Bank, Development Research Group, Trade and Integration Team, April 2010, www.iadb.org/intal/intalcdi/PE/2010/05413.pdf (called August 21, 2011). In economics, licensing agreements or agreements are beneficial to both parties. The licensee provides ownership and the taker brings specialized knowledge in the sector or territory covered by the licence. The resulting relationship is similar to a joint venture or partnership.

Licensing agreements include various types, including copyright licensing, patent licensing, product licensing, brand licensing and software licensing. Using a business based on a foreign market where a small business wants to grow can help in different ways. Foreign companies generally have a better understanding of the culture in which they do business and can produce and market products that are better for a foreign customer base than a company that does not have that knowledge, says international entry strategist Trade Ready. International joint ventures have some drawbacks. One of the major potential drawbacks, particularly in countries that limit foreign companies to minority stakes, is the loss of effective management control. This will allow you to reduce profits, increase operating costs, improve product quality, product liability, environmental litigation and fines. U.S. companies seeking effective management control will find this an important issue in negotiations with the potential partner of the joint venture and the host government. Licensing is a great way to enter a new foreign market.

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