CTL in Association with University of Wales 2nd Term MBA 0510-L Global Marketing Aim of the Assignment To critically analyse the advantages and disadvantages of using licensing as a market entry tool giving two detailed examples of companies from different countries that use licensing as a global marketing strategy Supervised By – Lipi Begum. Author – Rajkiran Sonavane Student ID – 28002383 Email – rajkiran. [email protected] ctlondon. ac. uk Abstract
This report focuses on the advantages and disadvantages of using licensing as a market entry tool in the global market supported by examples of two companies from different country origin with their operations in other countries. The companies/ brands chosen as examples are Tata Motors from India and Coca-Cola from USA. The report is formulated using data gathered from existing secondary sources like the books, news articles, websites, advertisements and commercials. Any information supported with evidence has been referenced using the Harvard referencing system. The report covers Introduction, Main body, Conclusion and Recommendation.
The examples will be included in the main body. [pic] Introduction The report is about companies that use licensing as a market entry tool. The aim of the assessment is to understand how a company can use licensing to enter the global market, what are the benefits and disadvantages of using such a strategy in general and in context to the examples being used? A company or a business can enter the global market by; • ‘Direct investment’ which involves all the cost to the company, • ‘Indirect exporting’ which involves product distribution for a fee or commission (Vrontis, 2005,1st para), • Sale of products through website e. . eBay. • ‘Contract manufacturing’ which enables rapid entry with low investment of cash, time and talent; control over marketing, after sales services and trademark protection; avoids currency, pricing and finance related problems; necessary if a production base is required in the local geographical area hence giving a nationalistic feel to the brands. (Albaum G. , et. al, 1998, Pg. 286) • ‘Licensing’ of patents or trademarks or copyrights for royalties. A licensor allows a foreign company to manufacture a complete product. • ‘Franchising’ permits its name, logo, design and operations to be used in establishing a new firm. Keegan J. W. , 2007, P. 247). The franchisor usually supplies limited services and products hence it is considered as incomplete license. (Albaum G. , et. al, 1998, Pg. 283) • ‘Partnerships, Joint Ventures and Strategic alliances’ usually adopted when it’s the only way to enter the market; equal risk sharing is necessary; converting a competitor into a partner is advisable. • And ‘cross licensing’ which covers mutual exchange of knowledge and or patents. It may or may not involve cash payment. (Albaum G. , et. al, 1998, Pg. 283)
For a company that has to lease its brand, technology and knowhow; it has to have international licenses or should hold permitted authority to sell their products and market their products in the globe through application of strategic integrated marketing communication. A company that uses licensing as a market entry tool must have licenses of both, the country origin of the company and the country where the product is to be marketed and sold. It is usually wise to begin with one product at a time rather than taking all products to all people. E. g. Cadburys is in chocolate manufacturing; Coca-Cola is in drinks business, etc.
Licensing can be defined as a contractual agreement whereby one company (the licensor) makes an asset (brand name/ patent/ knowhow) available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation. (Keegan J. W. 2007, p. 245) Apart from licenses, other factors like the demand for the product or the product acceptability in different geographical regions, the existing competitors or new entrants in the same business and barriers related to their existence, what will be the scope of their business in the new location?
What will be the estimated investment? What will be the return on investment? When is the break-even expected? Where do they have to compromise in licensing their brand and patent? In what way the trademark of the company will be used once licensed? How the company can ensure its protection from brand, trademark and patent piracy? What will be the potential loss if their patent secrets / formula have to be disclosed when the company is under legal pressure? Should the company disclose their patent secrets in such cases?
Will the licensor get satisfying percentage of royalty benefit from the licensee? What is the validity of the license? What are the threats there after? , etc has to be considered. Any negative or unsatisfying results in the above mentioned factors can prove to be disadvantageous for the licensor’s company. Practically thinking, the company should have important staff members like ‘a lawyer’ having experience in dealing with international, legal issues; ‘a banker’ who can be trusted and should be understanding; followed by an expert ‘accountant’ to keep track of all finance related matters. Delaney L. 2006, Factor. 12) Licensing is a suitable method used to enter the global market. Because; it helps the company to earn its revenue from their patents, trademarks, copyrights, and technology using appropriate marketing strategy. The company is able to understand foreign technology and develop its product as per demand to prove its competitiveness and gain strategic advantage over rivals. Proving the company image and reputation in one country will help to ain access and create a good impression in other countries. Licensing does not necessarily involve export of goods. Therefore when the government bans export of such product, licensing of the patent and formula to a manufacturer in other country will help income generation without any export. The licensor can enjoy production in foreign market without any capital investment as the licensee takes this responsibility. And Progressing companies help economic development. [pic]
As already stated in the Abstract, the companies chosen for study are Tata Motors from India and Coca Cola from USA. The main objective for Coca Cola is to gain profitability and it adopts a rational strategy to achieve long term advantage. Coca Cola has its operations in more than 200 countries and can be placed in the classical section on the Whittington’s four approaches to strategy chart because it is well established and is a leading brand in the soft drinks business accompanied by competitive pricing techniques.
But the Tata Motors can be placed in classic as well as evolutionary approaches. It is a classic approach as it is a well established brand in India and is making steady growth, and it is evolutionary because it has proved itself as the cheapest car manufacturer in the world with differentiation as its strategy, simultaneously being a new entrant to the global market. Main body As per the article published on 17th July in Auto News, Tata Company plans to issue license to foreign auto manufacturers to manufacture and sell the car ‘Nano’.
The car is already in demand from car makers in US, Latin America, Europe and South East Asia for manufacturing and marketing this car. The company definitely is interested in saving on cost of investment and production of this innovation. And as the car is known to be cheapest in its segment, is in demand all over the world. The company also plans to launch its electric car in the near future in Europe. (Tata press conference, 2009) The common modes that Coca Cola used to penetrate international market were licensing, exporting and franchising (Homiez, 2005).
According to the senior patent council Frank Landgraff, The Company also ‘licenses out’ technologies which are suitable for the beverage industry outside non alcoholic beverage segment but not with those who are competing with Coca Cola. The company gets advantage from royalties, and marketing benefits like image enhancement and increased exposure. Decision made by the two organisations; Tata motors created its international impression since its participation in export business. It has franchisee/ joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia and Senegal.
Its decision to get into the global car market is obvious as it has been successful in India and the global market is demanding creative and affordable products from the company. The company owns the leading brands like Jaguar and Land Rover. If the company can make a huge investment for the purchase of other international companies, licensing is a minor aspect for the company. Coca Cola is a good example that has used licensing and franchising to achieve worldwide network for its product. They market internationally by licensing bottlers in the world and enabling them with the syrup needed to produce the product. Kotler P. , Armstrong G. , 2008) The decision made by the company about going global helped them achieve great success. 70% of the total revenue is achieved from licensed companies in the globe. Although its sales declined in the America, 37 percent of its revenue came from Asia, Africa, and Latin America. These markets also contribute 49 percent of its operating income. (Hoffman D. , et. al. 2003, p. 68) The company also sells drinks to the restaurants like the McDonald’s, and KFC where the drinks are a part of the meal. (Hollensen S. , 2001) Both the companies have made the correct decision.
Rather than investing huge amounts in foreign markets without knowing the disadvantages, it is wise to license global companies to manufacture and sell the brand for royalties. Reason for the choice of licensing strategy; Coca Cola faced a strong competition from the Pepsi Cola brand in the US and their share in the domestic market was similar. This made Coca Cola to reduce its risk and increase its global market share by going global. (Homiez, 2005) Tata Company alone cannot manage to manufacture huge demands from the world due to unavailability of sufficient and suitable place to manufacture.
And even if it does then the company will notice competitors coming up with a similar product to grab the market share. As per the Auto news -17th July 2008, the company will retain the technology transfer and manufacturing knowledge. Hence licensing the manufacture of the car is a wise strategy. Problems faced by the companies; Coca Cola usually had been criticised on the quality of the product being unsuitable for consumption. Marketing related issues included; the use of language in naming the product and advertising the message / brand, must not convey the wrong meaning. E. g.
In china Coca Cola means ‘‘bite the wax tadpole’’ Coca Colas products were boycotted by the Arab nations for having their distributors in Israel. (Homiez, 2005) The anti American approach from Muslim consumers developed competitors like Arab Cola, Muslim Up, and Mecca Cola. (Graham C. 2005, p. 348) Tata Motors faced some problems in choosing the right place to manufacture the cheapest car ‘nano’ in India, but their decision to license global car manufacturers for global market will be an added advantage. The manufacturer will also consider the country specific requirements like size of the wheels.
To avoid loss in the global market, the company decided to retain its technology transfer and manufacturing knowledge. Even though there are competitors, the company is all set to take up the challenges. When Coca Cola products did not satisfy the Japanese, the company came up with 30 new drinks for Japan itself. E. g. Asian Tea, Fermented Milk, etc Similarly for China, they introduced ice tea and soy milk. (Homiez, 2005) As the company is dumping plastic bottles in the market which are not a good sign for the environment, they have come up with an idea of recycling the used plastic bottles in America which would also reduce the percentage of ollution normally created by the plastic manufacturing plants. (Chua M. J. 2007). The company is also participating in the water recycling activities for manufacture of the soft drink. In a most recent incident in Venezuela, the Coca Cola Zero was banned as it did not mention the use of an artificial sweetener ‘sodium cyclamate’ which is proved to be harmful to health, but in response the company declared that they use Acesulfame-K and Aspartame. Factors responsible for success;
Different countries have uncommon preferences and so Coca Cola came up with new flavours, new brands and also adjusted level of sugar as per demand to cater to different segments of the market; E. g. Diet Coke. The company adopted aggressive advertising reflecting fun, freedom, lifestyle appeals in their ads. They have been sponsoring international events like the Olympics, FIFA cup, Film Festivals and donating for charity as well. (Homiez, 2005) Apart from exporting they licensed international bottlers to sell their product by supplying them the syrup.
Coke commercials are usually standardized, but the local agencies make them better by using local faces. (Solomon M. R. , 2007, pg. 607-8) All these activities have together contributed towards their success. Tata has been continually innovating in production. They have acquired many international brands like Jaguar, Land Rover, Corus group, etc. Since the company has a progressive nature and the risk taking ability, success has always been with them. Effect of using licence on the organisations in general;
Using licensing will give more income, benefits, opportunity for growth, low investment, fee based income, brand recognition, publicity, and the company may witness an emerging competitor who is actually in the form of a licensee. Effect of licensing on the organisations entry method; Licensing affects the organisations entry method due to the variations in preference and choices of the consumer; the consumer behaviour influenced by religion; country specific trade laws and limitations; and standards related to health and safety.
The marketing environment mentioned in the introduction can affect the entry method; E. g. 1. If Tata wants to sell an automobile in the UAE then the manufacturers will have to change the steering from right hand to left hand for UAE market. E. g. 2. Coca Cola had to relaunch its product Diet Coke by changing the name to Coke light, and shifting the promotion them from weight loss to figure maintenance in the Japanese market as the women do not like to admit that they are dieting by consuming a product labelled ‘diet’. (Hoffman D. , et. al. 2003, p. 4) In Brazil, the law forced the company to specify daily recommended consumption on the Coca Cola products labelled with the term ‘Diet’, the company had to obtain special permission to overcome this restriction. (Graham C. 2005, p. 356) Other than using licensing, the methods like franchising, joint ventures, and contract manufacturing are also advantageous. The role that licensing can play in the overall success or failure of the organisation is that it can offer a profitable rate of return on investment for the duration of the agreement, provided the necessary performance guidelines are followed and objectives are met. Keegan J. W. , 2007) Conclusion The licensing method of entry to the global market for both the companies had been a success and very suitable. The organisations will definitely continue to use these options and there is no doubt about their future scope, they are growing and they will keep on improving in their field of expertise as per the demands of the consumers. We have already discovered through secondary research that the income from global market has given the companies its ranking and status among the international companies which would have not been possible if they had just concentrated on the native domestic market.
Hence I believe the companies have no reason to change their strategy unless they want to make a change by investment. E. g. Tata’s strategy to buy the Jaguar and Land Rover involves ownership of product, technology, knowhow, plant, etc. Licensing is the cheapest method of improving a business and its scope of expansion. Many small entrepreneurs can take advantage of their unique skill and discovery or invention by outsourcing and marketing the production and sale of their invention in the global market while retaining the trade secrets which would avoid competitors from taking away their crown. Recommendations • According to Keegan W.
J. , 2007, p. 246; the licensing agreements must enable ‘cross-technology’ exchange between the licensor and the licensee (unidentified competitor) to avoid unilateral benefits. Cross-licensing is Interchange of technology between two companies of different nationalities. Hence a ‘full cross-licensing’ forces a licensee to share its progress with the licensor. Licensing should help the companies get benefits from export market opportunities. The companies can earn fee based income by licensing their trademarks and brand names to other companies producing different products, provided the licensees are carefully selected and managed.
E. g. (Tata) – Tyres, Household appliances, etc. and (Coca Cola) – Ice creams, fruits, etc. • The licensor can limit the licensee from becoming a potential competitor when the arrangement is profitable to the licensee by allowing the licensee to become a partner. (Albaum G. , et. al, 1998, Pg. 284) • The licensee should be kept satisfied and in control by supplying innovations, product improvement, any change resulting better profit or added advantage to avoid potential risk of licensee becoming a competitor. The licensor can motivate the licensee towards product improvement and creating profitable products in return for low royalties. (Hollensen . S. , 2004, p. 311) • If the licensee gets access to the trade secret the licensor may find himself competing with the licensee. (Keegan J. W. , 2007, p. 245) and hence the trade secrets must be kept confidential and protected by laws. E. g. the Uniform Trade Secret Act (UTSA) in the US against infringement. • Licensing can save the licensor from potential risk of loss from production and manufacture in case of failure of the product or invention. (Graham J.
L. , Cateoria P. R. , 2002, p. 171), (Albaum G. , et. al, 1998, p. 284) • When the licensee is running short of funds during plant expansions to sustain the project, the licensor should turn the problem into an advantage by getting into a partnership for expansion. (Hollensen S. , 2001, p. 327) • The companies must concentrate on improving their product quality, rather than just trying to improve their image through strategic advertisement campaigns. The managers should view the product from a target consumer point of view ‘putting themselves in the buyer’s shoes’ similar to what Ratan Tata did. It is important to understand which country allows ownership by registration and which by invention as different countries follow different rules. There are some international conventions which protect intellectual property rights like the Paris Convention which includes US, and 100 other countries, The Inter American Convention includes most Latin American and US, and the Madrid Arrangements including 26 european countries. • Product, patent and brand piracy is a common problem that a company could face in the international market if its brand or patent is not protected.
The company should have a license or permission to use the brand name or patent in the global market to avoid any legal battles with the other global resident companies. • Licensing agreement should be viewed as non equity joint ventures of two parties working towards the procurement of a common goal of achievement. • The royalty rate that a licensor receives is almost 1/20th of the total sales made by the licensee which is a low percentage of profit with agreements lasting up to 10 years. During the period of agreement, the licensor is not authorised to enter the same market through investment or export.
This could be a threat to the image of the licensor if the licensee fails to exploit the market opportunity. For precaution, the licensor can limit the level of authority to the licensee by setting up terms and conditions of the contract. Like minimum royalty, termination or continuation of agreement on the level of performance shown. The licensor can also collect compensation from the licensee in the form of equity purchases in the licensees company. This will in turn help the licensor to convert its intangible entry into a tangible investment.
Managers should think carefully before making a decision about the foreign market entry mode by comparing it with level of profit, risk factor, objectives of the licensors strategy. Profitability analysis is very helpful in making agreement related decisions. References Vrontis, et. al, (2005) The use of entry methods in identifying multinational companies’ Adapt Stand behaviour in foreign markets. Entrepreneur Network (Online) Available from: http://www. entrepreneur. com/tradejournals/article/132561422_3. html (Accessed 8th August 2009, 14:00) Delaney L. , (2006).
Twenty essential factors to consider before going global, US-SME Toolkit (Online) Accessed from: http://us. smetoolkit. org/us/en/content/en/2257/Twenty-Essential-Factors-to-Consider-Before-Going-Global (Accessed 10th August 2009, 12:00) Tata Nano plans to issue license to foreign auto dealers, Auto news. Updated on: 17/07/09, (Online) Accessed from: http://www. carazoo. com/autonews/1707200802/Tata-Nano-plans-to-issue-license–to-foreign-auto-dealers (Accessed 29/07/09) Tata Press conference at Geneva Motor Show 2009, You Tube Videos (Online) Accessed from: http://www. youtube. com/watch? =pR218HERYMI&feature=related (Accessed 29/07/09) Homiez. , (2005) Everything related to the Coca Cola Company, Echeat (Online) 23rd August 2005. Accessed from: http://www. echeat. com/essay. php? t=27357 (Accessed 1st August 2009) Landgraff A. F. Patenting at Coca Cola yet2. com (Online) Accessed from: http://www. yet2. com/app/insight/insight/20010401_landgraff (Accessed 1st August 2009) Chua M. J. , Coca Cola to set up recycling, Improve Image. Treehugger (Online) Last updated: (09/07/07) Accessed from: http://www. treehugger. com/files/2007/09/coca_cola. php (Accessed 5th August 2009) Bibliography Albaum G. et. al, (1998) International Marketing and Export Management, 3e, Addison Wesley Longman Publishing Company. Keegan J. W. , (2007) Global Marketing Management, 7e, Prentice Hall of India Pvt. Ltd. Hoffman D. , et. al. (2003) Marketing Best Practices, 2e, Thomson South Western Graham C. , (2005) International Marketing, 12e, Tata McGraw Hill Graham J. L. , Cateoria P. R. , (2002) International Marketing, 11e, Tata McGraw Hill Publishing Company ltd Kotler P. , Armstrong G. , (2008) Principles of Marketing, 12e, Pearson Prentice Hall. Solomon M. R. , (2007) Consumer Behaviour, 7e, Prentice Hall of India pvt. ltd.
Hollensen S. , (2001, 2004) Global Marketing, A Decision Oriented Approach, 3e, Pearson Education Limited Skinner S. J. , (1994). Marketing, 2e, Houghton Mifflin Company Etzel M. J. , et. al. , (2007). Marketing,13e, The McGraw Hill Publishing company ltd. Holton R. H. , (1989). Foreign investment and joint ventures: an American perspective. In U. S. – China Economic Relations: Present and Future, Institute of East Asian Studies) Terpstra V. , Sarathy R. , (2000). The political- legal environment, Integrated Marketing, 8e, Harcourt Asia pte. ltd Lipscomb, E. B. , (1993). Licenses; Lipscomb’s Walker on Patents, 3ed.
Lawyers Co-operative Sherman A. J. , (2004) ‘Structuring licensing programmes and Agreements’ Franchising ; licensing, 3e, AMACOM books Appendices Life cycle benefits of Licensing; (Hollensen S. , 2004, p. 312) [pic] Advantages of licensing: Licensing could be an alternative to direct involvement in international trade when the political stability of a foreign country is in doubt or when direct involvement is not possible due to high rates of duty, import quotas and so on. (Skinner S. J. , 1994, p. 154) There may be valuable spin off if the licensor can sell other products or components to the licensee.
If these parts are for products being manufactured locally, there may also be some tariff concessions on their import. The licensor is not exposed to the danger of nationalisation or expropriation of assets. Because of the limited capital requirements, new products can be rapidly exploited, on a worldwide basis, before competition develops. The licensor can take immediate advantage of the licensee’s local marketing and distribution organisation and of existing customer contacts. Licensing protects patents, especially in countries that give weak protection for products not produced locally.
Local manufacture may also be an advantage in securing government contracts. (Hollensen S. , 2001, p. 327) As per Albaum G. Et. al. , 1998, p. 195; It is a viable means of developing investment footholds in overseas markets, and a compliment to exporting and direct investment in manufacturing facilities. Licensing helps the licensor to get access to the licensee’s technology, management, equipment, knowledge of the market to exploit the local markets and gain royalty based income. (Holton, 1989, p. 227) Disadvantages of licensing; As per Graham C. , (2005, p. 90-192); The Brands like the Marlboro, Kellogg’s, Microsoft, and Levi’s have experienced infringement of their intellectual property rights. In some countries, the first to register the trademark is considered as the owner. E. g, ‘‘McDonald’s’’ Restaurants, ‘‘Microsoft’’ software, and ‘‘Safeway’’ groceries legally belong to Jordan locals; Cidesport of Spain is selling sports apparel since 1932 under the brand name ‘‘Nike’’ but the ‘‘Nike’’ (US) lost its legal right to sell sportswear except shoes in Spain as Cidesport does not sell shoes under the brand ‘‘Nike’’. A country could be sensitive to foreign ownership.
Trade mark ‘over licensing’ can increase income at the initial stage, but in a long run it could bring a difficult situation. (Hollensen S. , 2001, p. 311) The licensee may prove less competent than expected at marketing or other management activities. Costs may even grow faster than income. The licensee may not fully exploit the market, leaving it open to the entry of competitors, so that the licensor loses control of the marketing operation. Quality control of the product is difficult- and the product will often be sold under the licensors brand name. (Hollensen S. , 2001, p. 327)
Licensees may become competitors as they get legal access to another company’s resources. Eg. ‘‘Meiji Milk’’ manufactured and marketed ‘‘Lady Borden premium ice cream’’ under a licensing agreement with Borden, Inc. When the licensing contract was over, Meiji started selling its own premium ice cream brands using the formula and secrets of the recipe (Keegan J. W. , 2007, p. 245) The licensor may also contractually bind the licensee to discontinue use of the technology after the contract has expired, however host government laws including US and EU antitrust laws, may make such agreements difficult. Keegan J. W. , 2007, p. 104) If the trademark is not used for 5 years, the contract automatically expires. In Venezuela the period is 2 years, eg McDonald’s lost its right in Venezuela as it did not use its trademark for 2 years after which a local Venezuelan owned the brand ‘‘McDonald’s’’, and now McDonald’s US cannot enter the market. (Graham C. , 2005, p. 193) Japanese share technology rather than protect it. They believe that an invention should serve a larger, national goal; with a rapid spread of technology among competitors to promote cooperation.
Hence, the lack of interest toward protecting intellectual property can be noticed in Japan. (Graham C. , 2005, p. 195) As per Keegan J. W. , (2007), p. 245; Whatever the management is unaware of the license acquired can put the company at a risk. The licensor is able to control the quality standards by law, but cannot control the licensee’s marketing strategy and the production volume. The financial returns after licensing are less compared to the financial returns after export or investment. When the license expires, the licensee may continue to market the product without paying the licensor and proceed independently. Skinner S. J. , 1994, p. 154), (Etzel M. J. , et. al. 2007, p. 67) Other issues related to the product; The main ingredient of the product and its impression- the coke contains some percentage of ‘cocaine’ which is not actually traceable. This is one of the stimulants used in the product. After 1904, the company started using spent coke leaves which are leftovers of the cocaine extraction process. However, very few people know what cocaine is and what are its advantages and disadvantages and how coca cola is manufactured.
The company usually discloses all the ingredients including caffeine which is another stimulant, but does not disclose that it uses leftovers of cocaine extraction process as additional ingredient in the formula. People who are health conscious and particularly doctors may not recommend consuming such a product if they know the facts related to the recipe. As per Terpstra V. , (2000, p. 138); the international marketer may find many rules and regulations resulting change or modification in the quality of the product to be marketed. This could happen to protect the resident consumers for safety, goodwill, privacy and many more reasons.
Eg; Thalidomide tragedy which caused many deformed babies in Europe, but the same drug was not permitted for sale in the US by the FDA (Food and Drug Administration). The current example is: The ban on sale of Chinese toy planes in India which operates on remote and have a capacity to carry up to 6 kg, this is for the public safety against terror issues. Laws related to international trade; An ‘‘exclusive license’’ is issued to only one licensee where as the ‘‘non exclusive license’’ can be issued to more than one licensee. The patent owner is prohibited from issuing the exclusive license to more than one licensee. Lipscomb E. B. , 1993) A competitor may want to gain access to confidential information about the technology, patent, etc by becoming a licensee. Some competitors may want to acquire exclusive license to technology and not let it enter the market. It is important to set some performance standards and some limitations before making the exclusive license with any licensee. License to share the product liability risk for products which are at a high risk could be advisable. Eg: loss due to flue to poultry industry. (Sherman A. J. , 2004, Ch. 19) As per ‘‘The political –Legal Environment’’ by Terpstra V.
And Sarathy R. , pg. 129-135; the country like the USA has signed treaties of friendship, commerce and navigation (FCN) with many countries. These laws cover commercial relations between two nations. Many of the governments use the taxation power to encourage or discourage the activity levels of the international companies. Eg; USA uses the Foreign Sales Corporation (FSC) to encourage 25 companies or exporters to share an FSC as the cost of the FSC might discourage small firms. This enables the companies to obtain a tax exemption on a portion of export earnings.
The IMF (International Monetary Fund) and the WTO (world trade organisation), these two agreements allow acceptable and non acceptable behaviour for member nations. An international marketer is interested in IMF as well as the WTO for maintenance of stable conditions in international trade. The IMF holds the power to authorise international finance whereas the WTO frees the international movement of goods. ‘‘UNCITRAL’’ is an international trade law that minimizes contract disputes and facilitates the task of selling goods between countries.
ISO which stands for International Standards Organisation helps overcome differing national standards. Agreeing to ISO standards, play an important role in international negotiations to win access to the export market. Eg; US industries have been less active in ISO than other exporting nations, this difference has cost US manufacturers lost sales to areas with other standards, namely Africa, Asia, and Europe. This loss was due to the television sets produced in the US which did not meet the specifications set by the International Telecommunications Union.
When a company wants to sell its product outside the home market, protecting the patent right might be important. The patent must be registered in each country where the company wants protection for its patent. Eg; 10 percent of the development cost of Hovercraft was spent on securing patents around the world. Also the trademarks go through the national registration process for protection. China, Hong Kong, Mexico, Philippines, and Hungary to name a few are countries were brand and patent piracy is common.
But if the patent or brand is protected in a country then the pirated brand or patent owner may have to face legal obligations. Eg; GM motors had to pay $500,000 to the ‘‘Beretta Foundation for Cancer Research’’ for using their brand name ‘‘Beretta’’ for a ‘‘sporty new Chevrolet’’. ———————– Research and development costs and market and development costs Time Costs Profits Cash flow for in house new product development Royalty Costs (Technology adaptation and market development costs) Cash flow for licensing in new product technology