question_answer 16)

Why is it said that licensing is an easier way to expand globally?

Answer:

Licensing is considered to be the easier way of expanding globally due to following advantages (i) Under the licensing system, it is the licensor who sets up the business unit and invests his/her own money in the business and the licensor has to virtually make no investments abroad. Licensing is, therefore, considered a less expensive mode of entering into international business. (ii) Licensor is paid by the licensee by way of fees fixed in advance as a percentage of production or sales turnover and licensor does not bear risk of losses. (iii) Since the business in the foreign country is managed by the licensee who is a local person, there are lower risks of business takeovers or government interventions. (iv) Licensee being a local person has greater market knowledge and contacts which can prove quite helpful to the licensor in successfully conducting its marketing operations.