International franchising, otherwise known as international licensing allows stand-out companies to enter new territories by using their brand and intellectual property (trademark and know-how) in return for royalties and product sales. This form of strategic partnership encourages businesses to grow internationally with low-risk incentives.
How are franchises and licensing related?
Franchises and licenses are both business agreements in which certain brand aspects are shared in exchange for a fee. However, a franchising agreement pertains to a business's entire brand and operations, while a licensing agreement only applies to registered trademarks.
Is franchising and licensing the same?
Ownership: In a franchise partnership, the business belongs to the franchisee. The franchisee essentially runs the business for the franchisor, but at a fee. In a licensing partnership, the licensee only pays the licensor for a specific product, for which the licensor may have taken out patent rights.
Is foreign licensing similar to franchising?
The difference between foreign licensing and international franchising is that foreign licensing is used to permit an organization to use another entity's intellectual property located in a foreign nation. In contrast, international franchising is a permit that allows different entities to share a common brand name.
What is franchising and foreign licensing?
Basically, franchising means that you're allowing another person to duplicate your business in another location, and licensing is when you allow someone else to sell your products. With both licensing and franchising, you will receive a fee from the person duplicating your business or selling your product.
What are the similarities and differences between licensing and franchising?
Licensing is governed by a licensing agreement, which involves a one-time transfer of property or rights for a fee. The licensor provides no technical support or assistance in most cases. Franchising is governed by an elaborate agreement specifying the responsibilities and duties of both the parties involved.
What is international licensing?
An international business licensing agreement involves two firms from different countries, with the licensee receiving the rights or resources to manufacture in the foreign country. Rights or resources may include patents, copyrights, technology, managerial skills, or other factors necessary to manufacture the good.
What are the advantages of licensing and franchising?
Advantages and Disadvantages of Franchising and Licensing The level of risk of the licensor is low because there is zero or next to zero investment is involved. Licensee/Franchisee is the individual who is the resident of the same country which limits Government intervention. Thus, business runs without any hurdles.
Why is franchising better than licensing?
Different Levels of Control - License agreements are limited to granting another business the right to use a trademark or technology but does not include control over how the business operates. Franchise agreements are broader and control how a business operates.
What licenses are involved in a franchising business going international?
Under international Licensing, a firm in one country permits a firm in another country to use its intellectual property( Patents, trade marks etc). Licensing is another way to enter a foreign market with a limited degree of risk.
What is an example of international licensing?
An example of foreign licensing would be if a company in the United States granted a company in China the right to produce, sell, market, or use its products and services in China. The terms of the agreement would likely include things such as the method of payment, release of obligation, and termination.
What is an example of licensing?
Licensing agreements generate revenues, called royalties, earned by a company for allowing its copyrighted or patented material to be used by another company. Some examples of things that may be licensed include songs, sports team logos, intellectual property, software, and technology.
What are the advantages and disadvantages of international licensing?
Exhibit 15.3AdvantagesDisadvantagesDoes not require capital investment or presence of the licensor in the foreign marketRevenues are usually more modest than with other entry strategiesAbility to generate royalty income from existing intellectual propertyDifficult to maintain control over how the licensed asset is used1 more row
What do you mean by licensing?
Licensing involves obtaining permission from a company (licensor) to manufacture and sell one or more of its products within a defined market area. The company that obtains these rights (the licensee) usually agrees to pay a royalty fee to the original owner.
What are the four 4 types of franchise?
There are 4 basic types of franchise agreements: Single-unit, multi-unit, area development and master franchising. A single-unit franchise is the most common and is simply where a franchisor grants a franchisee rights to open and operate one single franchise unit.
What is the difference between licensing and franchising Class 11?
(ii) Licensing means permitting other party in a foreign country to produce and sell goods under trademark, patents whereas franchising means sell or distribute the branded products in a specific geographical area, e.g., through its franchising system McDonalds operates first food restaurants in the whole world.
What is an example of licensing?
Licensing agreements generate revenues, called royalties, earned by a company for allowing its copyrighted or patented material to be used by another company. Some examples of things that may be licensed include songs, sports team logos, intellectual property, software, and technology.
What is international franchising?
International franchising. A system based on the licensing of the right to duplicate a successful business format in foreign markets. The franchisor grants to the franchisee the exclusive power to distribute its products or services in establishments which are equivalently equipped and furnished, as well as the right to use Intellectual Property ...
What is franchising in business?
A system based on the licensing of the right to duplicate a successful business format in foreign markets. The franchisor grants to the franchisee the exclusive power to distribute its products or services in establishments which are equivalently equipped and furnished, as well as the right to use Intellectual Property Rights (commercial signs, brands, trademarks etc.). It also provides the Know-How (Franchise Handbook), and the technical and commercial support for distribution to be carried out correctly. The franchisee follows the instructions stated by the franchisor in regards to the appearance, commercialization and corporate image on the authorized premises. For the services provided, the franchisee pays the franchisor a series of different fees (sales fee, Front-end fee, advertising fee, etc.). The two principal kinds of franchise contracts in international markets are: 1 direct franchise agreement, which are direct contracts between the franchiser or sub-franchiser and the operator of the franchise unit. 2 master franchise agreement under which the franchiser grants another party the right to sub-franchise within a given territory.
What is a master franchise agreement?
master franchise agreement under which the franchiser grants another party the right to sub-franchise within a given territory. In international markets, relationships between the franchisor and the franchisee are governed through a International Franchise Agreement. See also master franchise.
What are the two types of franchise contracts?
The two principal kinds of franchise contracts in international markets are: direct franchise agreement, which are direct contracts between the franchiser or sub-franchiser and the operator of the franchise unit. master franchise agreement under which the franchiser grants another party the right to sub-franchise within a given territory.
What is the difference between licensing and franchising?
Difference Between Licensing and Franchising. Licensing refers to an arrangement between licensor and licensee where latter party would acquire the right to use products and goods where the ownership remains with the licensor whereas Franchising refers to an arrangement between franchiser and franchisee where the latter will enjoy the ownership ...
What is franchising agreement?
Franchising: It is an agreement between two parties where the , one party (henceforth referred as the franchisor), permits another party (henceforth referred as the franchisee) to use its brand name or business model for a fee in order to conduct the business as an independent branch of the franchisor. Licensing: It is an agreement between two ...
What is Licensing?
To understand Licensing, let us take the example of Walt Disney. It is the registered owner of cartoon characters like Mickey Mouse, Donald Duck, etc., these characters are nothing but the outcome of an artist’s imagination which is now popular around the world. There are many merchandises which bear these characters on it; like bags, cups, bottles, etc.; now Walt Disney is not the sole manufacturer of this merchandise. Hence anyone apart from Walt Disney manufacturing these products enters into an agreement with the former to gain a right to use these characters on its merchandise for some consideration & sell the same. This kind of arrangement is referred to as licensing.
What is a license agreement?
Licensing: It is an agreement between two parties where the, one party (henceforth referred to as the Licensor), sells another party (henceforth referred to as the Licensee) the rights to use its intellectual property or manufacture the licensor’s products in exchange of royalty.
Who is governed by the licensor's terms of use?
The licensee is governed by the licensor’s terms of use as prescribed in the licensing agreement for the licensed product. Licensor, however, has no autonomy over the business of the licensor
Is franchising a subset of licensing?
Though both share similar advantages, licensing can be called a subset of franchising; i.e. a typical franchising arrangement would involve numerous licensing agreements to transfer the use of intellectual property rights. Franchising is a much broader concept since it involves a greater degree of control by the franchisor.
What is the difference between franchising and licensing?
The difference between licensing and franchising can be drawn clearly on the following grounds: 1 Licensing is an arrangement in which a company (licensor) sells the right to use intellectual property, or produce a company’s product to the licensee, for a negotiated fee i.e. royalty. Franchising is an arrangement in which the franchisor permits the franchisee to use business model, brand name or process for a fee, to conduct business, as an independent branch of the parent company (franchisor). 2 Contract Law governs, licensing whereas franchising is regulated, franchising regulations in many countries, but in case the franchising regulations are not in place then the company law regulates. 3 Licensing does not require registration, whereas registration is a must in the case of franchising. 4 In franchising, complete training and support are provided by the franchisor to franchisee which is absent in licensing. 5 The licensor has control on the use of intellectual property by the licensee but has no control over the licensee’s business. However, the franchisor exerts considerable control over franchisee’s business and process. 6 In licensing, there is a one-time transfer of property or rights, but in franchising involves the ongoing assistance of franchiser. 7 A substantial measure of fee negotiation is there in licensing. Conversely, standard fee structure exists in franchising.
Why is franchising more stringent than licensing?
in general franchising is comparatively stringent than licensing because usually, franchisers set strict rules, regarding the operation of the business by the franchisee.
What is franchising strategy?
We define franchising as a strategy mainly used by service companies, that allows the franchisee to use a business model, processes or brand name for a fee, to conduct business, as an independent branch of the parent company (franchisor).
What are the advantages of licensing?
The greatest advantage of licensing model is that the licensee bears the developmental cost and the risk associated with launching foreign operations. In the sphere of high technology, many companies provide technical know-how through this arrangement like Ranbaxy Laboratories Ltd. is in search of partners, for out-licensing its diverse technologies such as respiratory, urology, etc. However, sharing technological know-how with foreign companies is a bit riskier for technology-based companies.
What does a licensor do?
The licensor has control on the use of intellectual property by the licensee, but has no control on the licensee's business. Franchisor exerts considerable control over franchisee's business and process. Involves one time transfer of property or rights. Needs ongoing assistance of franchiser.
What is licensing in business?
Meaning. Licensing is an arrangement in which a company (licensor) sells the right to use intellectual property or produce a company's product to the licensee, for royalty.
How to enter a foreign market?
The five major ways of entering a foreign market are exporting, licensing, franchising, forming joint ventures or establishing a wholly owned subsidiary.
What is the difference between a franchise and a license?
However, a franchising agreement pertains to a business’s entire brand and operations, while a licensing agreement only applies to registered trademarks. Franchises typically work best for service-based businesses, while licenses are more conducive to product-based businesses. A licensee has more control over how they run their business compared to a franchisee, whose business will be dictated by the franchise owner (franchisor). However, a franchisee will also receive significant guidance and training from the franchisor.
What is franchising?
A franchise is a business agreement between a franchisor and a franchisee. The franchisor is the owner of a business. The franchisor sells the rights to their brand — including products and services, intellectual property and more — to a franchisee, who will open up a separate branch under that brand’s name, which is essentially a duplicate of the original business.
Why is franchising important?
Franchising also has the benefit of a shared relationship. The franchisor gets to scale their business rapidly while minimizing some of the work , which is instead done by franchisees. Additionally, the franchisee works with the franchisor to manage the business and learn business skills that they may not know already.
What are the pros and cons of becoming a franchisee?
One of the pros of becoming a franchisee is all the benefits of being a self-employed business owner without the risks of starting a new business. Franchises come with the bonus that they’re already a proven business model with a pre-established customer base.
What is franchising a franchise?
Franchising is a deeper, more complicated business relationship and agreement than licensing. A franchisor retains control over how their brand is used and how each franchise under their name is operated.
What is a licensee?
Licensing, on the other hand, is a limited, legal business relationship where a specific party is granted rights to use certain registered trademarks of a brand. The business relationship is between the licensor (the one who owns the trademarks) and licensee (the one who is granted rights to use them).
How much does it cost to franchise a business?
In comparison to a license, a franchise will seem much more expensive and complicated. Initial franchise fees can cost between $10,000 and $50,000 — then there are the ongoing fees to keep in mind. This might seem exorbitant, but it’s important to remember that you’re getting access to an entire business. In comparison, a licensing agreement only gives you access to use specific trademarks in certain ways. So, a license will be cheaper and less complicated, but it also gives you access to a lot less.
What is Franchising?
Franchising is a business agreement between a franchisor and a franchisee. A franchisor is a business owner. The franchisor sells the rights to their brand, including products and services, intellectual property, and more. A franchisee who will open a separate branch under this trademark is, in fact, a clone of the original business.
What is Licensing?
License refers to a commercial agreement entered into between two parties in which one company authorizes the other to use its intellectual property for a specified period and under specified conditions, which is possible through licensing. This will include the company’s manufacturing process, copyrights, trademarks, patents, technology, etc.
Franchising vs Licensing – 8 Major Differences
The licensing process is governed by a licensing agreement, which includes a one-time transfer of ownership or rights for a fee. In most cases, licensors do not provide technical support or assistance.
The Bottom Line
When deciding what’s right for your business and comparing franchising to licensing, you must consider the needs and goals of your business.