Joint Ventures and Technology Licensing
Technology licensing and joint partnerships are two more strategies to generate worldwide sales revenue. These partnerships, while not usually the most successful modes of exporting, can have certain advantages, especially for small and medium-sized firms.
Licensing of Technology
Patents, trademarks, service marks, copyrights, trade secrets, and other intellectual property owned by the licenser may be sold or made accessible to a licensee under the terms of a contract established in advance between the parties. A lump-sum royalty, a running royalty (depending on the amount of output), or a mix of both may be paid. According to the licensing agreement, Typically, American corporations license their technology to foreign firms that manufacture and sell goods in one or more nations. A technology licensing arrangement allows your organization to swiftly enter a global market while posing less financial and regulatory risks than owning and managing a foreign manufacturing site or joining a joint venture in another country. Licensing also allows U.S. businesses to bypass various tariff and nontariff hurdles that stymie the export of American-made goods. As a result, licensing may be appealing to small businesses or businesses with limited foreign trading expertise.
Cross-licensing agreements or grant-back provisions that offer rights to enhanced technology generated by a licensee can also be utilized to acquire foreign technology through technology licensing. (To assess responsibility, seek legal guidance.)
Manufacturing isn't the only industry where technology gets licensed. Advertising, bookkeeping, training, and other services are typically provided by the franchiser to assist the franchisee. In many cases, the franchiser also provides the franchisee with the things he or she needs.
Every year, a large number of innovative franchise concepts are developed into lucrative businesses, the majority of which are based in the United States. Personal fitness, flower and confectionery businesses and eldercare businesses are among the most recent worldwide franchising triumphs. Many franchises are designed specifically for entrepreneurs in poor nations, with low-cost license fees. Attending the Annual Convention of the International Franchise Association (IFA) (franchise.org) is a great opportunity to learn about new franchising concepts and trends.
Technology licensing has certain disadvantages as a method of "exporting." Because the technology has been handed to another firm, your control over it has decreased; also, licensing often generates lower earnings for your organization than exporting actual goods or services. It may also be difficult in some countries to appropriately secure licensed technology against unlawful usage by third parties.
Patents and trademarks should be registered in each nation. Copyright is recognized worldwide, but patents and trademarks are territorial, therefore rights may change based on legal traditions in various nations. (Because EU regulations apply to all EU members, you only need to submit your patents and trademarks once with the European Union [EU].) You can apply for patent protection both within the EU and in specific countries across the world thanks to the Patent Cooperative Treaty (PCT) and the Madrid Protocol. Visit www.stopfakes.gov and uspto.gov for additional information.
Remember that foreign licensees may seek to exploit licensed technology to make goods that compete with your firm or other licensees when contemplating technology licensing. Antitrust laws in the United States and abroad, as well as host nation licensing regulations, may be used by US licensers to impose geographical restrictions on overseas licensees. Also, if the US licenser has proper protection in the appropriate nations, U.S. and foreign patent, trademark, and copyright laws can frequently be invoked to prevent unauthorized sales by international licensees.
Many nations, especially those in the European Union, have strong antitrust regulations that influence technology licensing. Intellectual property licensing includes patent and information licensing, as well as design and model rights and software copyright licenses, are all examples of intellectual property licensing.are governed by the EU's block exemption regulation—Commission Regulation. If you are already licensing the technology to the EU or are considering doing so, make sure you understand and carefully analyze the regulations.
Because foreign technology licensing is so complicated, it's best to seek experienced legal guidance in the United States before signing anything. It's also a good idea for U.S. licensees to hire skilled legal counsel in the host nation so that they may get guidance on applicable local legislation and help getting the agreement approved by the foreign government. Sound legal guidance and a comprehensive examination of the prospective licensee, as well as the host country's relevant practices, will boost the chances of a lucrative licensing arrangement.
Partnerships and Joint Ventures
In certain circumstances, joint ventures are the most effective way to generate international trade revenue. International joint ventures are employed in a broad range of industries, including manufacturing, mining, and services, and they typically entail the licensing of technology from a US corporation to the joint venture.
Depending on the host country's legislation, a specific percentage (typically 51 % or more) of manufacturing or mining activities must be held by nationals of that country, restricting U.S. businesses' local participation to minority stakes in joint ventures. Despite these legal constraints, a U.S. company's founders may consider forming a joint venture with a foreign corporation to assist offset the high costs and risks associated with worldwide operations. The local partner will most likely provide knowledge of local consumer norms and tastes, a well-established distribution network, and key commercial and political ties to the joint venture. International joint ventures may have certain potential drawbacks. The loss of effective management control is a big potential disadvantage, particularly in nations that limit foreign corporations to minority involvement.
As a result, you can see lower earnings, higher operational expenses, worse product quality, product liability risk, and environmental lawsuits and fines. This issue will be crucial in talks with the prospective joint venture partner and the host government for US corporations that want to retain effective management control. Because overseas joint-venture agreements typically involve complicated legal concerns, you should get legal advice from skilled U.S. counsel before engaging into one.
Companies considering foreign joint ventures in the United States should also consider obtaining qualified counsel in the host country. Because a prospective partner's objectives may not always match with your own, depending on a possible joint venture partner to obtain host government clearances and provide legal counsel might put you at a disadvantage.
Qualified foreign counsel, on the other hand, maybe invaluable in gaining government permits and giving continuous guidance on intellectual property, tax, labor, corporate, commercial, antitrust, and exchange control legislation in the host nation.
A Success Story Cast a wide net to locate fresh opportunities. The Spancrete Machinery Corporation is a concrete manufacturer.
The Business
In its Waukesha, Wisconsin, production facility, Spancrete Global Services Incorporated, a division of the Spancrete Group, employs 45 people. Henry Nagy founded the company, which produced the first precast hollow-core slabs in North America. Spancrete offers its equipment through licensing agreements and direct sales all over the world. They've expanded into India, the Middle East, Kazakhstan, and, most recently, the Russian Far East in the last five years.
The Obstacle
Licensing agreements were desired by the corporation, but they were prohibited by the Chinese government. As a result, the corporation decided to sell the equipment entirely. Customers were initially state-owned companies, and the Chinese government pushed them to develop into the precast construction market despite their lack of experience in the field. Those businesses began by manufacturing floor slabs, Spancrete's most basic product, but local architects and engineers had little expertise with precast concrete products. Even in a state-run economy, businesses require strong marketing to create sales.
The Way Forward
Spancrete began aiding with seminars for these state-owned firms and the construction sector in general to better support the companies.
The next milestone, according to Terry Deitrich, worldwide marketing director, was the formation of the China Spancrete Association, which was likely the first of its type. The association is a non-profit assistance group that helps Spancrete's Chinese clients with technical, manufacturing, and marketing issues.
"The Chinese didn't comprehend the notion of a professional association at first," Deitrich explained. "'Why should we pay dues to belong to something like this?' they said. 'Why should we collaborate with folks who aren't part of our company?'
Spancrete aggregated existing expertise for the benefit of all members by working via the association. The organization addressed the lack of norms and standards by offering suggestions on topics such as the maximum weights that floors may safely take and undertaking research on seismic and fire-safety problems. Finally, the firm and the organization were successful in having Spancrete-China products registered in the national building and design code. In China, business procedures are fast evolving, and rivals are becoming more fierce. Furthermore, the economic boom has spread to the south and west of where it began, presenting new opportunities and problems. "Today, China is doing okay in terms of business," Deitrich said. It took a long time for the much-awaited and comprehensive new construction code to be approved. The codes should be given shortly, allowing for another boom, which we're prepared for. It wasn't their way of doing things. They can now see the benefit and will continue to support the association's efforts."
Learned Lessons
The importance of thinking globally is the most significant message. According to Deitrich, there are far too few firms that do so.
"The American approach is to be content with the North American market. It's merely a case of foolish planning. Their competitors in other areas are generating money, and sooner or later, because of their expertise in some of these new markets, they'll be here, more competitive.
Getting American firms to travel overseas, even in a slump in the domestic economy, is like pulling teeth. Saudi Arabia has billions of dollars to invest in infrastructure. We haven't arrived. The Chinese have arrived. "Is it safe over there?" we think as we sit in North America.
To give an example, he said he takes his suppliers to Middle Eastern building trade exhibitions, where they all make sales. Dietrich contacted around 100 businesses, but only eight agreed to attend, and all of them made sales. "The Germans will bring 300 of their enterprises to a trade show—lawyers, finance specialists," he remarked. The German Prime Minister will arrive by plane to cut the ribbon that will officially start the event. We don't have that type of muscle on our side." Despite its flaws, Spancrete should remember that the world is eager for American products, technology, and know-how. "Construction design and standards are increasing all around the world." Engineering is growing more sophisticated. The public is asking that construction be made safer. Many developing nations are trying to emulate western and American norms, which are best executed with American equipment. Markets are seeking faster, cheaper, and more long-term solutions. All of these are strong strengths for American providers. Working with U.S. and state government export aid programs is another valuable learning.
"In seven Chinese cities, I used the Commercial Service's business matching and Single Company Promotion program recently. Local enterprises interested in acquiring our equipment systems were identified by the Commercial Service, and meetings with important government officials were scheduled. In India, Russia, and Kazakhstan, they've proven to be beneficial. The customer service is outstanding."
Finally, Deitrich feels that Spancrete has improved as a result of its exporting. "International market experience has made me a more effective professional and the organization more competitive," he added. There's no denying that selling internationally has improved our export efficiency and made our products more competitive in all of the countries we currently serve and will serve. We streamlined our product all the way down to our software to make everything easy to use, regardless of the weather or the language is spoken.
Company key staff have benefited from their worldwide experience, and we continue to bring new ideas back to the firm and implement them across the board.
These markets have a lot of competition, but that's where the opportunity is. Exporting is no longer an option, and these markets are where America's export future resides."
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