Licensing vs Exporting: Which is the Best mode for Business?

International marketers use various modes of entry to capture foreign markets. Hence, licensing and exporting form two very important concepts for International marketing and management students. It is therefore essential to understand and be able to differentiate between the two entry modes. Let me take you on a short journey where I discuss which strategy is the most chosen by businesses around the world

What is Exporting?

Exporting is the direct selling of products to the end customers in the foreign company or may also include indirect exports where an intermediary acts as the agent of selling. This helps the company to take advantage of local knowledge and networks of the intermediaries which helps in developing a close relationship with the consumer. Some common forms of direct exporting are E-commerce and through local exporters. Some disadvantages, however, include trade barriers and tariff controls, cost of transportation, and exchange rate fluctuations which can hamper the cost and have a subsequent effect on the potential revenue. It must be noted that however, the risk in exporting is less it is the least financially rewarding mode of entry.

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What is Licensing?

In licensing, the company chooses another party in the host country to use its intellectual property in return for a licensing fee. It is mostly done by giving permission to the second party to use the name of the company and manufacture as well as sell its products. Franchising is a form of licensing where the second party sets up stores in the name of the company. This method allows to creation of a revenue stream and captures a strong market in little time and monetary investment. However, it is important to have strong control over the licensee, and there is always a risk to the brand image due to the unsatisfactory operations of the licensee.

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Factors to Choose the Correct Strategy

A successful market entry strategy must be chosen after considering the following questions:

• Does the product need localization? Do we need a completely new product?
• Does the market know about our company and products?
• Which part of the country or rather which country is being targeted? What are the trade regulations of the place?
• What is the best time to venture? Do we get a first-mover advantage?
• Which is the most financially viable option? How much risk is associated?

All international marketing courses focus on enabling the students to understand the global market scenario and thereby be equipped to plan strategies. Therefore, the assignments would also focus on the same. The majority of the assignments would be in terms of planning and developing cases where the end result must explain why the strategy was chosen along with proper facts and supporting literature. It may also include market research techniques. These assignments are majorly practical in nature and therefore, require an in-depth knowledge of the topics and clarity of concepts. It, therefore, becomes crucial for the students to have clarity of terminologies and an understanding of advantages and disadvantages in order to excel and achieve HD grades in the course and the subject.

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