International Contracts for Co-operation- in- production.

31. Licensing Contract: definition, advantages and disadvantages.

Licensing – a contractual arrangement whereby the licensor (selling firms) allows the parts of its intellectual property like: technology, trade marks, or other propriety advantages to be used for a fee called royalty by the licensee (buying firm)

Frequently, worldwide companies are called on to furnish technical

assistance to firms that have sufficient capital and management strength.

By means of a licensing agreement, one firm (the licensor) will grant to

another firm (the licensee) the right to use any kind of expertise, such as

manufacturing processes (patented or unpatented), marketing procedures,

and trademarks for one or more of the licensor’s products.

The licensee generally pays a fixed sum when signing the licensing

agreement and then pays a royalty of 2 to 5 percent of sales over the life of the contract (five to seven years with an option for renewal is one common way to structure such agreements). The exact amount of the royalty will depend on the amount of assistance given and the relative bargaining power of the two parties.

Advantages of licensing

We should examine the basic advantages of licensing in the manufacturing industry, since that are where most licensing arrangements are found. For example a company that manufactures computers, and use traditional original equipment manufacturing (OEM) channels, that deliver high returns on investment, but they also require a substantial amount of money can easily improve its cost to profit ratio by licensing these responsibilities to another company.

Licensing also gives a company the opportunity to utilize additional

marketing and distribution channels in new geographic locations.

Determine the Market

Before a licensor can land a licensing deal, he has to have a product or

technology – or at least a solid idea or plan for one. Licensees will be

interested in his core product/technology if it either complements their

existing offerings or represents a new growth market for their company.

He needs to ask himself questions like:

1. What companies need the functionality his product/technology offers?

2. Do these companies already have a product that fills complementary

market needs?Is anyone else licensing this functionality?

4. Which of his competitors could benefit from this functionality?

5. Can he license this functionality to them and still keep marketing core

products to his existing customers?

6. What do prospects see as the potential use of his product?

The answers to these questions should help a company better understand

what type of market potential your product has for licensing.

This forced foreign companies to obtain licenses instead of making illegal

copies. Texas Instruments (TI), for example, sued nine Japanese electronics manufacturers for using its patented processes without paying licensing fees.

Despite the opportunity to obtain a sizable income from licensing, many

firms, especially those that produce high-tech products, will not grant licenses. They fear that a licensee will become a competitor upon expiration of the agreement or that it will aggressively seek to market the products outside of its territory. At one time, licensors routinely inserted a clause in the licensing agreement that prohibited exports, but most governments will not accept such a prohibition.

Adv:

· Revenue

· Brand recognition

Disadv:

· Competition

· confidentiality

32. Franchising Contract: definition, advantages and disadvantages.

Franchising – is a sort of licensing in which a parent company (the franchisor ) runs another independent entity (franchisee ) the rights to do business in a prescribed manner.

Franchisingworks as a contractual agreement by which the franchisor who owns the business idea and brand, sells (franchises) the right to operate the business in a specified area, subject to compliance with prescribed modus operandi. The franchisee then pays a fee to the franchisor in return for access to the business, and the fee is usually made up of a fixed charge on signing the agreement, plus regular payments of royalties-based on sales.

Advantages:

– the franchise has a great importance upon a country’s economy because it stimulates international trade and the macroeconomic development, by offering support to small and medium entrepreneurs, it favors specific different social groups (women, young people, minorities), offers managerial coaching, it reduces the risk and the uncertainty for the consumer, it creates new jobs, it supports the new habits and ideas in the economy, it helps the commercialization of a greater number of goods and services, it contributes to the initiative and creativity development and to the language enrichment by implementing new specific terms.

– it allows the rapid expansion of the franchisor’s business with low risks compared to the risks to which the franchisee is exposed. Also, the franchisor has the possibility to save the capital costs, because the beneficiary is the one that pays for the investment. They also benefit from the promotional activity the franchisor carries on, which exceeds by far the promotional campaigns of small private entrepreneurs, of the latest technical assistance, of methods of access to special sources of supply and of course they have the benefit as well to use a brand or a name that are commercially known (the franchisor’s).

– the franchisor’s purchasing power can impose smaller costs and can generate higher profits for the franchisee.

– the franchisor can help solving some special problems as the company’s location, the obtaining of the registers, of the taxes and of other commitments.

– the possibility of a rapid expansion without reducing the company’s capital.

Disadvantages:

From the franchisee point of view:

Are related to the financial side of the contract. Some of them admit that they have to pay too much for the raw materials or for taxes, they do not have enough flexibility in the decision making process, because all the operations are undertaken centrally, and this lack of flexibility can have negative results for the ones who have to face unusual or different market conditions. This too strict control from the franchisor part results in a reduced initiative and creativity from the franchisee part.

There can appear difficulties in prolonging the contract or in taking advantage of the accumulated experience at the end of the contract.

The assistance provided by the owner of the franchise is insufficient.

At the macroeconomic level, the franchise has on short-term, a negative effect upon the balance of payments. By imposing a certain level of standardization of the economy, it contributes to creativity reduction of the ones who start a business on their own.

Also, the franchise is considered to be perishable. Success can inevitably attract other economic agents and the competition is impending.

From the franchisor point of view:

The disadvantages associated to this kind of system can be the risk that the beneficiary may not fulfill the contracting obligations, by not respecting the quality standard, by not maintaining the brand image, the difficulties that can be encountered in exerting control and also the possible competition attempts from the franchisee’s part.

33. Leasing Contract: definition and types.

Leasing – a contractual relation in which the lesser delivers, for an agreed period, the right of possession and use of personal goods/object, to the lessee/user , on his request, for a periodic payment.

Types of leasing:

– by results and conditions of contract:

1. Operating lease (service, maintenance) – short term, cancelable, maintenance of the asset is provided by the lesser. The lease runs for less than the full economic life of the asset, and the lessee is not liable for the financing of its full value.

2. Financial lease – long period, noncancelable, the lessee provides the maintenance, property taxes & insurance. Under a finance lease, the finance company owns the asset throughout and the agreement covers a set period – considered to be the full economic life of the asset. Often, there is an option to continue leasing at a reduced, or ‘peppercorn’ rate, at the end of the contracted period.

– by participants:

3. Direct lease – direct lease is a simple lease where the asset is either owned by the lessor or he acquires it. In the first case, the lessor and equipment supplier are one and the same person and this case is called ‘bipartite lease’. In bipartite lease, there are two parties. Whereas, in the second case, there are three different parties viz. equipment supplier, lessor, and lessee and it is called tripartite lease. Here, equipment supplier and lessor are two different parties.

4. Indirect lease – a tri-lateral business transaction which involves a manufacturer (supplier) of an asset, a lessee or leasing recipient, and a leasing organization or lessor. The individual parties to this transaction have already been discussed. Indirect leasing, or leasing in the narrow sense, is characterized by two separate contracts as follows: A sales contract between the manufacturer and the leasing company, and a contract of lease between the leasing company and the lessee.

Indirect leasing involves the sale of the leased asset, while financing proceeds through the leasing company (which is a party to the leasing contract itself).

– by nuances and mechanisms:

5. Leveraged lease has 3 parties – lessor, lessee and the financier or lender. Equity is arranged by the lessor and debt is financed by the lender or financier. Here, there is a direct connection of the lender with the lessee and in case of default by the lessor; the lender is also entitled to receive money from lessee.

6. Sale-leaseback - the lessee sells his asset or equipment to the lessor (financier) with an advanced agreement of leasing back to the lessee for a fixed lease rental per period. It is exercised by the entrepreneur when he wants to free his money, invested in the equipment or asset.

Date: 2016-03-03; view: 733