Licensing/franchising as a mode of overseas business suffers from the following weaknesses.
- There is a danger that the licensee can start marketing an identical product under a slightly different brand name when a licensee/franchisee becomes well versed in the production and marketing of the licensed/franchised products. This can lead to severe competition to the licenser/ franchiser.
- If not maintained properly, trade secrets could get divulged to others in the foreign markets. Such lapses on the part of the licensee/franchisee can cause serious losses to the licensor/franchiser.
- Over time, there could be conflicts between the licensor/franchiser and licensee/franchisee over matters such as maintenance of accounts, payment of royalty and non-adherence to standards relating to the manufacture of quality products. Such variations could often lead to costly litigations, causing harm to both the parties.