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much business risks and investments. Some of the specific advantages of licensing are as
follows:

• Under the licensing/franchising system, it is the licensor/ franchiser who sets up the business
unit and invests his/her own money in the business. As such, the licensor/franchiser has to
virtually make no investments abroad. Licensing/franchising is, therefore, considered a less
expensive mode of entering into international business.
• Since no or very little foreign investment is involved, licensor/ franchiser is not a party to the
losses, if any, that occur to foreign business. Licensor/franchiser is paid by the
licensee/franchisee by way of fees fixed in advance as a percentage of production or sales
turnover. This royalty or fee keeps accruing to the licensor/franchiser so long as the production
and sales keep on taking place in the licensee’s/franchisee’s business unit.
• Since the business in the foreign country is managed by the licensee/franchisee who is a local
person, there are lower risks of business takeovers or government interventions.
• Licensee/franchisee being a local person has greater market knowledge and contacts which can
prove quite helpful to the licensor/franchiser in successfully conducting its marketing operations.
• As per the terms of the licensing/ franchising agreement, only the parties to the
licensing/franchising agreement are legally entitled to make use of the licensor’s/ franchiser’s
copyrights, patents and brand names in foreign countries. As a result, other firms in the foreign
market cannot make use of such trademarks and patents.

Limitations
Licensing/franchising as a mode of international business suffers from the following weaknesses.
• When a licensee/franchisee becomes skilled in the manu-facture and marketing of the
licensed/franchised products, there is a danger that the licensee can start marketing an identical
product under a slightly different brand name. This can cause severe competition to the licenser/
franchiser.
• If not maintained properly, trade secrets can get divulged to others in the foreign markets. Such
lapses on the part of the licensee/ franchisee can cause severe losses to the licensor/franchiser.
• Over time, conflicts often develop between the licensor/franchiser and licensee/franchisee over
issues such as maintenance of accounts, payment of royalty and non-adherence to norms relating
to production of quality products. These differences often result in costly litigations, causing
harm to both the parties.

Joint Ventures

Joint venture is a very common strategy for entering into foreign markets. A joint venture means
establishing a firm that is jointly owned by two or more otherwise independent firms. In the
widest sense of the term, it can also be described as any form of association which implies