What does licensing allow a company to do?

Licensing allows a company to use a trademark, patent, or process owned by another company for a fee or royalty. This arrangement enables the licensee to utilize established brands, technologies, or processes without having to invest heavily in developing them in-house. It typically involves an agreement where the licensor provides permission to the licensee to use their intellectual property in exchange for compensation, which can be a percentage of sales, a flat fee, or other financial arrangements.

This arrangement is beneficial for both parties; the licensor gains revenue without extra production costs, and the licensee gains access to reputable brands or proprietary technologies that can enhance their products or services, helping them reach markets more quickly and effectively.

This contrasts with other concepts such as establishing joint ventures, which involves forming a new entity with shared equity between partners, or franchising, where a franchisor provides a complete business model to franchisees to operate under their brand. Additionally, direct investment in foreign operations implies a larger commitment than what licensing entails, as it typically involves owning and managing operations in another country.