When compared to joint ventures and wholly owned subsidiaries, licensing/ franchising is comparatively a much easier way of gaining access into overseas markets with proven product/technology without much business risks and investments. Some of the specific benefits of licensing are:
- It is the licensor/franchiser who sets up the business unit and invests his/her own money in the business, under the licensing/franchising system. As such, the licensor/franchiser does not have to invest overseas. Therefore Licensing/franchising is considered a cheaper way of entering into overseas business.
- Since meagre amounts of foreign investment is involved, licensor/ franchiser does not bear the losses, if any, that occur to overseas business. The Licensee/franchisee pays fees to the licensor/franchiser a fixed amount in advance as a percentage of manufacture or sales return. This royalty or fee keeps accumulating to the licensor/franchiser until the manufacture and sales gets going in the licensee's/franchisee's business unit.
- There are lower risks of business takeovers or government interventions as the business abroad is run by the licensee/franchisee, who is a local person.
- Licensee/franchisee being a local person could prove quite helpful to the licensor/franchiser in conducting its marketing operations successfully as he has a much better market knowledge and contacts.
- As regards the terms of the licensing/ franchising agreement, only the parties to the licensing/franchising agreement are legally allowed to use the licensor's/franchiser's copyrights, patents and brand names in foreign countries. Hence, other companies in the overseas market cannot make use of these trademarks and patents.