Advantages and Disadvantages of Globalization via licensing May, 2014 | Page 2

Advantages and Disadvantages of Globalization through Licensing
License
It is a contract that legalizes authority to one entity (licensee) of using confidential business
practices of another entity (licensor). Providing licenses abroad can give a particular company
exposure and revenue. However, at the same time, this practice has side effects as well.

Advantages:
Revenue
When a person or group receives a particular license, it has to then compensate for the license
with multiple payments to the original business owners. The licensee also has to come to an
agreement on profit sharing with the owner. In addition to that, in the case of any losses, the
licensor stays unaffected, as the licensee is responsible for all the losses. The licensor also
evades all the costs and taxes, which would have otherwise been borne if the licensor had
brought the brand to the host country.

Brand Recognition
The brand receives global recognition and exposure as people on the brand’s behalf would be
operating in the host country.

License Term
The licensee may not extend or end the lease of the property without the consent of the
licensor. However, the licensor has the right to end the license with the current licensee and
sub-lease it to another licensee.

Risk Aversion for the Licensee
The licensee does not have to set up a new product, but instead, can invest into an already
established foreign product that has brand value in the market. Moreover, the licensee evades
the risk and cost associated with establishing the new product.

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