I found it interesting that you would go with the licensing approach. I agree wi

Question

I found it interesting that you would go with the licensing approach. I agree with the fact that if you licensee you are working with somebody who knows the market. But i do not agree that it reduces your risk. It may reduce your risk in the fact that they will guide you possibly how to best sell your product in the market or tell you what the market is asking for. I think the negatives on it are that you are now creating competition in the market. It puts you in a situation where you are now going against competitors since they have the right to use the same production process you use. You create a risk that now exposes your confidential, proprietary production process. The more people now that know the process the higher the risk is that somebody will breach that confidentiality and become a competitor, and all your hard work now can go to waste and make somebody else money that didn't work as hard. When you are in a licensing agreement you don't have any direct control over other employees and the contractors making it hard for you to have any control over your product. I think to avoid all of those risks and begin by exporting, you have more control over your product when you do that. I think by licensing you are also limiting your level of income. I think you could be in more control when you export of your income. The other company you are licensing too can ruin your reputation and trademark which can hurt you in the long run if you every try to come up with another product. What would you say the main advantage to licensing is? And after reading my response would you still stick with your initial decision?

Explanation / Answer

Licensing has some inherent advantages when compared to in-house production activities. First of all if a company is small and has less financial capability in establishing its own production facility , then such firms may opt for licensing . Also when a firm first wants to test the market conditions before having own production facility , then licensing may be a best option . However licensng has disadvantages as specified in the article above. Therefore it is left to best discretion of the firm whether it opts for licensing or in-house production capability . The firm has to weigh its options and then decide upon the best course of action which will help to achieve its strategic objectives .

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