International Trade/Offshore Manufacturing/Sourcing/Export/Import/Consulting Licensing - People Are the Key International licensing relationships are a means of growing your business and entering into new markets when your company has proprietary technology, know-how, information and/or systems to license, and interested potential licensees from which to choose. The licensee is willing to pay what may be a substantial fee, in addition to royalties on future income, in order to obtain access to what is perceived or presented as a key element in the licensor's success. The licensor is willing to reveal what is normally held confidential in order to gain access to new markets, increase its income stream, and/or broaden and deepen its international reputation. The advantages of this type of relationship for the licensor include: Little, if any, capital investment required (it is the licensee's responsibility to develop the market); the ability to depend on business people from that country and culture to know how to market and sell in their country; and no responsibility for the running of a foreign operation. The disadvantages can include: Limited profits over the long term (due to the low risk involved for the licensor); limited control; and the possibility that a licensee may become a direct competitor upon termination of the agreement. An experienced international business transactions attorney can help you decide if a licensing arrangement would be appropriate for and beneficial to your business, and then prepare the licensing agreement to be used. The attorney will know if foreign legal provisions or conditions need to be considered, and will know how best to legally protect your interests within the framing of the agreement. Where do you find a suitable potential international licensee? An element that is often overlooked in the "how" of finding a suitable candidate is the human element. Experience teaches that getting to know the people in charge of a company, as well as those with whom you will be working, is just as important, if not even more so, than receiving financial statements, banking references and the more esoteric aspects of due diligence. People Are the Key A company is made up of people. It is not an abstract entity. It is people who will have access to your confidential technology and know-how, people who will be using your company's name, people who will be working with your products or services, people who will be in a position to uphold or mar your company's reputation. Therefore you want to choose people that are honorable, responsible, experienced in your market or industry, well-respected, with a good reputation that stands up to scrutiny, financially solid, and committed to a long-term relationship and long-term growth. You need to take the time to get to know the people who will be most involved in this relationship, and to let them get to know you. Ideally, you should visit them in their country, visit their company's offices, observe how they and the others in the company work, observe how they relate to those around them and vice-versa, observe the personal characteristics that may impact your professional relationship. To observe implies a deeper level of awareness than just seeing; it implies an internal note-taking. The more experience you gain in this the more you learn that the translation of experience differs from country to country, and even from company to company. You must hone your intuition and perceptivity. Cultural differences are real and have a real effect on business relationships, sometimes unbeknownst to one or both of the parties. Even business people who are intellectually aware of cultural differences often act and react without realizing that cultural misinterpretation and/or miscommunication is at the root of a situation. Or they may be on the alert for other culture's signals without being aware of the signals that they send out via their normal modus operandi. The best potential licensee isn't necessarily the one in the most luxurious offices or who speaks the best English or who has the flashiest credentials. Nor is it always the candidate who is the "hungriest" or most willing to sign an agreement quickly. Initially, your faulty translation of experience may lead to unhappy consequences, and with time and errors you may learn that the luxurious offices were built on avarice and ruthlessness, that the best English speaker never communicated his true intentions, or that the eager willingness to sign an agreement stemmed from a disinterest in complying with its terms. Hindsight is always 20/20, but with experience your vision becomes sharper and your observing allows you to analyze and come to conclusions that aid you in choosing the right licensee partner. This is important, because the licensing relationship implies a deeper level of commitment on both parts than in an agent or distributor relationship; a deeper level of vulnerability and exposure on the part of the licensor; and a deeper requirement of confidentiality, responsibility and respect on the part of the licensee. High expectations exist on both sides. I travelled to Latin America earlier this year to interview potential licensees, as well as visit with our existing licensees. In the interviews and discussions with potential licensees in Argentina, Chile, Colombia and Ecuador, I always stressed what we realistically could and could not deliver within the framework of a licensing relationship. My sincerity was noted and appreciated, and helped build trust during my visits. Out of that visit, we now have a new licensee for Chile and a good candidate in Ecuador. Win-Win Relationships That is why I always recommend that honesty - and the establishment of a win-win relationship - prevail during the negotiation of a licensing agreement. If not, the initial "win" experienced by the licensor in getting the licensee to acquiesce to its conditions may eventually be replaced by resentment on the part of the licensee when the cost of the agreement is seen as being greater than the actual (as opposed to anticipated) return. This is not the basis for a long-term relationship, nor for a relationship with someone who has access to your company's confidential and/or proprietary information, as well as its reputation. Common sense dictates that, as much as possible, licensing agreements be fair and acceptable to both sides. Compromises will usually be necessary, within the parameters agreed to by the companies and their attorneys. But structuring agreements based on "I win you lose" will almost always turn into "lose-lose" situations. Where you look for a suitable licensee is similar to where you look for a suitable distributor: professional and personal contacts, industry and market associations and events, trade shows. Through professional international contacts and relationships that I developed in one industry, I was able to obtain references to excellent licensee candidates for a totally different industry in the same foreign city. Business people abroad are often excellent sources for information and contacts in their city, even for contacts outside of their particular industry or market, since business relationships are often initiated in social settings to which all the local players belong or the local players know each other by reputation if not personally. Don't Be in a Rush Industry and market associations and events, especially those with international members, are excellent for meeting individuals who are already in your market and successful enough to be able to afford association membership and attending such events (especially when international travel has been required for them to attend). A word of warning: you need to beware of rushing into business relationships initiated during the excitement generated at these events. Sometimes, the delightful dinner companion or presentation attendee who was so interested and attentive doesn't turn out to be the best licensee candidate for the long term. There can be a brief honeymoon phase during which an agreement is negotiated and signed, and then reality rears its ugly head and enchantment turns to disillusionment. You still need to take the time to get to know each other and each other's companies, visit each other, and let the relationship develop over time. In addition to the above, the U.S. Department of Commerce has a Gold Key service that will research and investigate potential licensee candidates (based on your company's indicated requirements) then set up meetings for you in the foreign country. If needed, they can obtain a translator and/or driver for you, and will also make you hotel reservations. I have used this service and was pleased with it. At the very least, you know that the companies with which you are meeting have a good reputation in the local community (which would be very difficult for you to ascertain on your own), are interested in discussing a potential licensing arrangement with you, and meet the requirements that you have indicated. The cost of an average of $200-300 per day (paid directly to the U.S. Consulate) for three to eight interviews per day is very reasonable when compared to what it would cost to do the initial research, investigation and communications yourself. In conclusion, there is a higher level of risk in a licensing relationship than with an agent or distributor relationship, since proprietary information is being revealed. However, a licensing arrangement can be a successful way to grow internationally if the right foreign licensee is chosen, expectations on both sides are realistic, and good relations are developed and maintained. Advertise on this site Put your company on this site!