TRADE AND INTERNATIONAL LICENSING
Cross-border investment is a vital component in this era of economic interdependence. Cross border investments include Foreign direct investment (FDI), Trade and International licencing.
Trade: This entails buying and selling across a customs frontier rather than a geographical border.
Advantages include: Allows for the Spread of risk
Allows for preliminary first steps into a new market
No major expenditure of capital as opposed to FDI
Not as complex as other CBI's
In Trading, there is a need for one to research the target market; in relation to the demand for your product, cultural preferences, IP protection and regulations, Import and export controls in the trading countries. Import controls or restrictions are mechanisms used to control the volume and value of products that are allowed into the importing country with the aim of maintaining the Exchange rate of its currency. Examples of import and export controls include Trade tariffs or import duties or taxes imposed to make the product more expensive. Import licences and import quotas that limit the number of products that allowed in, currency restrictions that limit the amount of foreign exchange convertible for the payment of import goods. legal provisions prohibiting the entry of illegal or harmful goods.N.B the last three are called non-tariff barriers.
Export controls are usually imposed by federal agencies with the aim of controlling the exporting of goods in short supply, protection of national security, such controls will be imposed on exporting of items such as military weapons, commercial wares such as software, technical information. In the US these export regulations protect and control the disclosure of certain controlled software soft code, or technical information to a foreign national whether within the US or abroad.
As a potential trader, it is important to take into cognizance transportation risks, language barriers all through the stages of trade, as well as cultural differences such as work ethics, for example in France, beginning from the month of August shops begin to close down. Further concerns a trader should bear in mind will include, an absence of control as to how your product is packaged, marketed or sold hence there is a danger of misuse, trading via road or aeroplanes will result in larger carbon footprint.
International licensing agreements- the owner of IP rights grants that right to another entity in another country based on certain agreed terms for a set or unlimited time in exchange for something such as Money. A bundle of rights is given including the right to distribute, display IP on packaging, perform a work in public, copy or adapt the work. Examples of IP rights include patents, copyrights, trademarks, service marks or trade secrets etc. in comparison to exporting, international licensing agreements are preferable seeing as 1. It allows for greater entry
2. it allows the importer to tailor the product in alignment with local regulation
3. allows the product to be made and manufactured more efficiently
4. trade restrictions are avoided or restricted to a minimum.
5. minimal or no start-up cost for the licensor.
6. transit limited or non-existent
As a licensor, there is a need to ensure that your product is well protected in the target market. a licensing agreement can give rise to piracy whether or not sanctioned by a country, it may lead to the unauthorised use by licensee or sublicensee, there may be issues with quality control. there may be a lack of enforcement mechanisms of the licensing agreement in the licensees country, host countries regulation may pose a problem for instance; there may be a restriction or control of rights to enter a licensing agreement, there may be a restriction or control over substantive contract terms, for example, sublicensing may be made mandatory in the host country, there may be approval schemes or franchise disclosure rules.
Foreign Direct Investment would be tackled in the next article.
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