basic-guide-to-exporting_Latest_eg_main_086196

Chapter 7Tech Licensing andJoint VenturesIn this chapter . . .• Methods of obtaining foreign trade income• Advantages and disadvantages of technologylicensing and joint venturesThere are two additional ways of obtaining international sales income: technology licensing andjoint ventures. Although not always the most profitable forms of exporting, these arrangementsdo offer certain advantages, particularly for small and medium-sized businesses.Technology LicensingTechnology licensing is a contractual arrangement in which the licenser’s patents, trademarks,service marks, copyrights, trade secrets, or other intellectual property may be sold or madeavailable to a licensee; compensation is negotiated in advance between the parties. Paymentmay be in the form of a lump-sum royalty, a running royalty (based on volume of production), ora combination of both. U.S. companies frequently license their technology to foreign companieswho manufacture and sell products in one or more countries, per the licensing agreement.A technology licensing agreement usually enables your company to enter a foreign marketquickly, and it poses fewer financial and legal risks than owning and operating a foreignmanufacturing facility or participating in an overseas joint venture. Licensing also permits U.S.companies to overcome many tariff and nontariff barriers that frequently hamper the exportof U.S.-manufactured products. Therefore, licensing can be attractive for small companies orcompanies with little international trade experience. Technology licensing may also be used toacquire foreign technology through cross-licensing agreements or grant-back clauses that awardrights to improved technology developed by a licensee. (Seek legal advice to determine liability.)Technology licensing is not limited to manufacturing. Franchising is also a form of technologylicensing—the franchiser (licenser) permits the franchisee (licensee) to use its trademark orservice mark in a contractually specified manner for the marketing of goods or services. Thefranchiser usually helps support the franchisee through advertising, accounting, training, andrelated services. The franchiser also often supplies products needed by the franchisee.U.S. Commercial Service • A Basic Guide to Exporting85