Question

Why should a firm be cautions about entering a licensing agreement?

250words

Answer 1

Depending on the type of market, operations, and the main area of application, the licensing can severely limit the company’s future prospects, especially when it relates to proprietary technology or formula. The consideration for trust needs to be high, but even with legal backing, the fact that the company’s competitiveness relies on its IP might severely compromise its position if it were to be released. Second, as a brand, the company might want to eventually enter the market its licensor currently operates in, making the entry harder and limited by the terms of engagement specified in the contract. The firm’s brand image can be ruined if the licensee does not cater to the specifications provided by the licensor, especially considering the lack of control over the licensee’s operations after the contract has been drawn. The licensee can become a direct competition when our brand enters the market and therefore, we have to consider all possible contingencies, especially as the world progresses globally. Since profit is not being shared between the two contracting parties, the consideration for the loss of control and the potential of creating a future competitor would create the necessary factors why a business should be cautious when entering a licensing agreement.

We can also consider the fact that if the firm plans to expand globally, the need to create strategic coordination would exist, and since the licensee might have its own structure and process, the licensor will be affected in developing into the market where its product already exists but with another brand or supply chain process.

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