Advantages and Disadvantages of International Licensing

International Licensing
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Licensing can be defined as a contract between two parties where the first party (licensor) allows the second party (license) to use its intellectual property, technology, process, and designs; by paying a one-time or a periodic fee (Beamish, 2017). Licensing plays a key role in the internationalization strategies of businesses as it requires less time and capital in comparison to other internationalization strategies such as FDI (Foreign Direct Investments) and JV (Joint Ventures) (Beamish, 2017).
In licensing agreements, there are certain advantages and disadvantages for both the parties involved: The biggest advantage of international licensing is that it does not require a large amount of capital for either the licensor or licensee. The second advantage of international licensing is that it does not require high resources to undertake market study or invest in research & development, thereby also saving time required. However, there are certain disadvantages associated with licensing as well: The first disadvantage is that if a licensee does not maintain quality and service and is unable to fend off competition, it may impact the reputation of the licensor. The second disadvantage is that if the licensor is unable to cope up with product or technology positioning, the license value for the licensee will be lower than the cost it pays to the licensor (Beamish, 2017).
As mentioned in case 5 (Richard Ivey School of Business, 2017), 41 out of the top 50 global licensors are based out of the US. According to Fullerton (2017), Walt Disney Company is the world’s leading licensor with brands including Marvel, DisneyPixar, Lucasfilm, ESPN, ABC, and Walt Disney Studios and earned a total of $56.6bn from licensed merchandise in 2016. The company has developed various assets that are highly popular among consumers and therefore assets-inspired merchandise is in demand with consumers. The company has three main content groups: The Walt Disney Studios (focused on theatrical and movie entertainment busi...