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Foreign Licensing: Benefits & Drawbacks

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  • 0:01 Foreign Licensing…
  • 1:49 How Foreign Licensing Works
  • 2:59 Advantages of Foreign…
  • 3:56 Disadvantages of…
  • 4:42 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

Sometimes companies want to expand beyond the borders of their home country. When this happens it's important to do your research so that you are successful. In this lesson, we will learn about an agreement that can help companies in this situation.

Foreign Licensing Agreement Defined

Megan owns a company called Computers and More. The company has been wildly successful in the U.S. and interest in her products from other countries has started to grow. Because Megan feels that she can grow both physically and financially if she expands to other countries, she started doing some research on how to do so safely. The first bit of information she runs across while conducting her research is that of foreign licensing.

Megan learns that a foreign licensing agreement is the opportunity to allow another company in another country to sell, market, or produce your property while you receive royalties. Let's take a look at how Megan learns why this might be advantageous to her and her company and what drawbacks such an agreement may pose as well.

When companies like Megan's want to expand to other countries, they often face some cultural barriers. These barriers can be overcome by entering into a foreign licensing agreement with another company from that country that understands the culture, society, and how business works. A foreign licensing agreement gives permission to another company or person to market your products while you sit back and collect royalties. While it is a great way to expand the growth of your business, there are some guidelines that must first be met.

First, Megan and any other company owner need the exclusive rights to the product before they can allow another person to sell or market it. Also, it is best to use the help of the U.S. Commercial Service Strategic Partnership Program to locate those companies that will make quality business partners in other countries. The objective is to protect your company while maximizing profits.

How Foreign Licensing Works

Once Megan has fully committed to taking her business to another country, she will first find a company that can be trusted. Next, comes the agreement process. The agreement needs to grant another company rights to the products utilizing any patents and designs of Megan's company so that the products resemble the U.S. products as closely as possible. Megan will also need to establish how long the agreement will be for and any expectations, requirements and limitations that the company has to follow.

Megan also needs to indicate which laws will be used should there be a problem. In other words, specifying the laws of your state and reinforcing that the U.S. will have jurisdiction means you do not have to rely on the laws of another country to help you in any legal battle. There is also the issue of money. Megan needs to address how she will be paid, and should request that a statement is provided to ensure that she is getting paid correctly. It may even be a good idea to include a clause that gives Megan power to look at the books of the other company to make sure they are accurately paying royalties.

Advantages of Foreign Licensing

So what are the advantages of using a foreign licensing agreement? Let's take a look at some important benefits for a company like Megan's.

1. Who better to understand how business works in another country than a company that is actually located there? A foreign company knows how to market or advertise to customers and attract them to your product.

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