A cross border contractual relationship provides the focal firm with over the foreign partner

Cross-border contractual relationshipEntering a formal agreement with a distributor, jointventure firm, or other partner abroad--Often involves granting permission to a foreign partner to use intellectual propertyIntellectual propertyIdeas or works created by firms or individuals, such as patents,trademarks, and copyrights--Includes knowledge-based assets of the firm or individuals such as industrial designs, tradesecrets, inventions, works of art, literature, and other "creations of the mind."2 Types of Contractual Relationships 1. Licensing2. FranchisingLicensingAn arrangement in which the owner of intellectual property grants another firmthe right to use that property for a specified period of time in exchange for royalties or othercompensationFranchisingAn arrangementin which the firm allowsanother the right to use anentire business system inexchange for fees, royalties,or other compensationUnique Aspects of Contractual Relationships-Governed by a contract-Typically involve exchange of intangibles (intellectual property) and services-Can be pursued independently or with other foreign market entry strategies, such as FDI andexportingTypical Types of Intellectual Property-Patent-Trademark-CopyrightPatentprovides the right to prevent others from using an invention for a fixed period of time. Itis granted to anyone who invents a new process, product, or useful improvementTrademarka distinctive design or symbol that identifies a product or service; e.g., Nike'sswoosh symbolCopyrightprotects original works of authorship; it typically covers works of music, art,literature, movies, or softwareLicensing Agreementspecifies the nature of the relationship between the licensor (owner ofintellectual property) and the licensee (the user)Examples of Licensing Agreements-Intel licensed the right to a new process formanufacturing computer chips to a firm in Germany.-Warner licenses images from the Harry Potter books and movies to companies worldwide.-Disney licenses the right to use its cartoon characters in producing shirts and hats to clothingmanufacturers in Asia.How does a typical licensing deal work?In a typical deal, the licensee pays the licensor afixed amount upfront and an ongoing royalty (usually 2-5%) on gross sales generated fromusing the licensed assetLicensor provides a combination of1.2.when using licensing as a Foreign Market Entry Strategy1. Intellectual property (patent,trademark, design, copyright, or know-how)

Angelica WeissChapter 16: Licensing, Franchising, and Other Contractual StrategiesContractual entry strategies in international business: cross-border exchanges where therelationship between the focal firm and its foreign partner is governed by an explicitcontractIntellectual property: ideas or works created by individuals or firms, includingdiscoveries and inventions; artistic, musical, and literary works; and words, phrases,symbols, and designsIntellectual property rights: the legal claim through which proprietary assets are protectedfrom unauthorized use by other parties.Contractual Entry StrategiesTwo common types of contractual entry strategies are licensing and franchisingoLicensing is an arrangement in which the owner of intellectual property grantsanother firm the right to use that property for a specific time period in exchangefor royalties or other compensationA royalty is a fee paid periodically to compensate a licensor for thetemporary use of its intellectual property, often based on a percentage ofgross sales generated from the use of the licensed asset.As an entry strategy, licensing requires neither substantial capitalinvestment nor involvement of the licensor in the foreign markets.Relatively inexpensive way for the firm to establish a presence in themarket without having to resort to expensive FDIoFranchising is an advanced form of licensing in which the firm allows another theright to use an entire business system in exchange for fees, royalties, or otherforms of compensation.Cross-border contractual relationships share several common characteristics:oThey are governed by a contract that provides the focal firm with a moderate levelof control over the foreign partner.Formal agreement specifies the rights and obligations of both partners.Control refers to the ability of the focal firm to influence the decisions,operations, and strategic resources of the foreign venture and ensure thepartner undertakes assigned activities and proceduresFocal firm also maintains ownership and jurisdiction over its intellectualproperty.oThey typically include the exchange of intangible and servicesIntangibles that firms exchange include various intellectual property,technical assistance, and know-how.oFirms can purse them independently or in conjunction with other entry strategies.In pursuing international opportunities, firms may employ contractualagreements alone, or they may combine them with FDI and exporting.The use of the agreements is context specific; that is, the firm mayuse a contractual relationship with certain customers, countries, orproducts but not others.oThey provide dynamic, flexible choice.

When a firm allows others to use a business system in exchange for compensation the relationship is known as which of the following?

Is an arrangement in which the focal firm or a consortium of firms plans?

What occurs with a licensing agreement?

Which of the following is an advantage of licensing and franchising?