Advantages and Disadvantages of Globalization via licensing May, 2014 | Page 3

Disadvantages
Competition
The licensees may involuntarily spark some sort of competition among themselves considering
that each of them use the same processes. The owners often therefore limit the scope of the
licenses through geographic, time or quantity bounds.

Exposure of resources to the Licensee
Another major disadvantage to providing licenses is the exposure of all or part of important
confidential information. The licensee gets the access to information such as the production
process. The licensee might even exploit the resources provided by the licensor. The licensee
soon learns about much of the operations of the brand and therefore becomes a potential
competitor. Moreover, due to lack of control, the licensee can use the business for a number of
fraudulent activities.

Lack of Control
The licensee has very little control over what could or could not be done to improve the
business process. In most cases, the licensor devises the standard operating procedures for the
franchises and the licensee has to go through a certain procedure to make any changes.

Follow-up with the Licensor
The licensee has to follow up with the licensor to make sure that the code of conduct and the
operating procedures are up to mark and in accordance to the actual business.

Source:
http://www.researchomatic.com/advantagesdisadvantages-of-licensing-as-a-mode-of-entry-intoforeign-markets-155871.html

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