Licensing and Franchising as Market Entry Modes

One of the primary market entry modes is licensing, which was introduced many years ago to facilitate production overseas. A license and franchise enable foreign firms to manufacture the proprietor’s product by adhering to a fixed requirement set by the leading company.

The licensor establishes limited rights or gives the licensee some resources, namely trademarks, technology, managerial skills, and patents. At this juncture, the licensor wants the new operator to manufacture products that are similar to that of the original company. For example, Honeywell International is a corporation that deals with various products such as aerospace products, technologies for home, automotive products, and turbochargers. The company headquarters is in Morris Township, New Jersey. Honeywell has over 1,500 licenses worldwide and earns more than $100 million in revenues annually. The advantages of licensing are obtaining knowledge, reach new markets, minimize political risk, and retain already established markets (Hyatt, 2016). On the other hand, its disadvantages include lower income, the lack of licensee control in marketing and manufacturing, and the risk of damaging reputation if the licensee is incompetent.

Franchising started a long time ago. It involves the franchiser giving the production rights to others so that they can provide its products or services. As opposed to licensing, franchising has strict terms and conditions and offers many resources and the right of production. For example, the franchiser gives equipment, training, operation manual, and managerial systems to the franchise. For instance, the Kentucky Fried Chicken (KFC) headquartered in Louisville, Kentucky has over 600 franchised outlets. The merits of franchising include low political risk which enables a firm to expand in different regions simultaneously and facilitates proper financial investment (Minuteman Press, 2013). The demerits of franchising include the difficulty in maintaining franchisee’s control hence the need for regular performance evaluation of franchisee, and the complexity in preserving franchisor’s brand image.

In conclusion, licensing and franchising are crucial entry modes that enable a firm to introduce its products and services in foreign markets. Also, licensing and franchising assist in providing the production rights and resources to partners by setting specific requirements.

References

Hyatt, P. (2016). Have a great product or service? Licensing could be the right market entry strategy for you. Trade Ready. Retrieved from http://www.tradeready.ca/2016/topics/market-entry-strategies/have-a-great-product-or-service-licensing-could-be-the-right-market-entry-strategy-for-you/.

Minuteman Press (2013). Franchising as a market entry strategy. Retrieved from https://www.shop.minutemanpress.com/franchise/2013/10/06/franchising-as-a-market-entry-strategy/.