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Questions and Answers
A fee paid periodically to compensate a licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of the licensed asset, is called a ______.
A fee paid periodically to compensate a licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of the licensed asset, is called a ______.
royalty
When a firm allows others to use an entire business system in exchange for compensation, the arrangement is known as ______.
When a firm allows others to use an entire business system in exchange for compensation, the arrangement is known as ______.
franchising
Which of the following is an advantage of licensing?
Which of the following is an advantage of licensing?
An advantage of licensing is that firms are able to
An advantage of licensing is that firms are able to
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By establishing a brand name and market power through a licensing agreement, licensors are able to
By establishing a brand name and market power through a licensing agreement, licensors are able to
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The reputation of a licensor will be jeopardized by a licensing agreement if the licensee
The reputation of a licensor will be jeopardized by a licensing agreement if the licensee
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Which of the following is an example of franchising?
Which of the following is an example of franchising?
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Franchising is an advanced form of licensing in which the franchisor allows the franchisee the right to use an entire business system in exchange for compensation.
Franchising is an advanced form of licensing in which the franchisor allows the franchisee the right to use an entire business system in exchange for compensation.
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Host-country governments often encourage franchising because most of the money generated by the franchise remains in the local economy.
Host-country governments often encourage franchising because most of the money generated by the franchise remains in the local economy.
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Turnkey contracting is an arrangement in which the focal firm or a consortium of firms plans, finances, organizes, manages, and implements all phases of a project abroad and then hands it over to a foreign customer after training local workers.
Turnkey contracting is an arrangement in which the focal firm or a consortium of firms plans, finances, organizes, manages, and implements all phases of a project abroad and then hands it over to a foreign customer after training local workers.
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Compare and contrast licensing and franchising as foreign market entry strategies. Why is franchising a more comprehensive strategy?
Compare and contrast licensing and franchising as foreign market entry strategies. Why is franchising a more comprehensive strategy?
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Describe five advantages of licensing agreements from the perspective of the licensor.
Describe five advantages of licensing agreements from the perspective of the licensor.
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Study Notes
Licensing, Franchising, and Other Contractual Strategies
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Royalty: A fee paid periodically to a licensor for the temporary use of intellectual property, often calculated as a percentage of gross sales.
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Franchising: A business model where a firm (franchisor) allows others (franchisees) to use its entire business system in exchange for compensation.
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Licensing Advantages:
- Ideal for complex products/services/knowledge.
- Requires minimal capital investment in foreign markets.
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Licensing Advantages for Firms:
- Allows entry into markets with trade barriers.
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Licensing and Brand Building: Establishing brand name and market power through licensing agreements enables licensors to have a stronger local presence. It also allows control over the use of licensed assets.
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Licensor Reputation Risk: Licensor reputation is jeopardized if licensees market competing products at significantly lower prices or produce poor quality goods. Refusal to pay royalties also compromises the relationship.
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Franchising as an Advanced Form of Licensing: Franchising involves more extensive control over the franchisee's business operations.
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Host-Country Governments and Franchising: Governments often encourage franchising as profits remain within the local economy.
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Turnkey Contracting: Focal firms or consortia plan, finance, implement, and manage every project phase abroad, ultimately handing it over to the foreign client after training local workers.
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Licensing vs. Franchising:
- Licensing: focuses on intellectual property transfer
- Franchising: more comprehensive; dictates business system specifics.
Advantages of Licensing Agreements (From Licensor's Perspective)
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Low Capital Investment: Licensing doesn't require significant investment in foreign markets.
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Access to Restricted Markets: Allows entry into countries with foreign ownership restrictions in sectors like defense and energy.
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Overcoming Trade Barriers: Facilitates market entry through licensing even if trade barriers like tariffs exist.
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Market Viability Assessment: Licensing serves as a low-cost method to gauge the viability of foreign markets.
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Brand Building: Allows for brand development in target markets by preempting competitors.
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Description
This quiz explores the concepts of licensing, franchising, and contractual strategies in business. It covers important definitions, advantages, and risks associated with these practices. Test your understanding of how these strategies can impact market entry and brand reputation.
