Licensing
Licensing involves making your products or services available, through a contractual arrangement, for another company to produce or replicate for a set period of time in return for licence fees. Licensing usually includes manufacturing and marketing rights, backed by intellectual property rights.
Licenses can cover:
- inventions
- software and technologies
- manufacturing systems and processes
- products and services
- artistic and literary materials.
Licensing avoids the capital costs of manufacturing yourself and can give you immediate access to local knowledge and experience of the licensee. The downside is that you may have little control over who they sell to and you can end up with a much smaller slice of the profit. You may need to keep an eye on the products produced by the licensee under your brand – if they are producing goods of poor quality it could affect your global reputation.
Franchising
Franchising involves licensing your whole business format. To succeed a frachise must have efficient well-documented business systems. This method particularly suits food, retail and service firms.
The franchisee agrees to strict operational rules and you receive a royalty payment based on percentage of sales. You give the franchisee rights to your business systems, branding, marketing and processes. Franchising can be a good way to expand your business rapidly with someone else providing the capital.
You may have to make regular inspection trips overseas to ensure that standards are being adhered to.
Find out more about franchising from the Franchise Association of New Zealand.
Royalties
Royalties are payments made for use of an assett such as intellectual property (IP) rights. A good example is when a book is published the author receives royalties - an agreed amount - whenever there is a sale.
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