After reviewed few literatures about licensing and joint venture, we summarized the findings and results into three subtopics, which are pros and cons of licensing and joint venture, factors affecting the firms for taking licensing and joint venture, and strategies of licensing and joint venture.
Pros and Cons of Licensing
Licensing can help both licensor and licensee company to save costs. For licensor, it can save the capital expenditure that needs to set up company and acquire equipments. While for licensee, it can save the research and development costs by paying the royalty fees which are generally cheaper than develop in-house.
Another advantage of licensing is risk minimization. ...view middle of the document...
Furthermore, licensing is a complicated agreement. The terms, conditions and restrictions must be stated clearly. An agreement with less control, the strategy and way of marketing may adversely affect the products. Yet the agreement has too many restrictions, licensee may dissatisfy the control of licensor over too much area. This will affect the relationship between licensor and licensee. In the worst case, the relationship can end in a lawsuit.
Pros and Cons of Joint Venture
By entering a joint venture, it provides an access to greater resources. Since all the partners are contributing resources to the business rather than just one party contribute capital, there is availability of greater resources such as capital resources, experienced employees, advanced technology and so on.
In addition, the risks and costs are shared among partners. Partners shared the profits and losses according to a particular ratio that they agreed, and thus reduce the risks bared by each partner. Work load can also be shared among partners so that the burden would not fall on one partner.
A joint venture can eliminate partners’ weaknesses and utilize their strengths. For instance, one company has advanced technology but does not have resources, in contrast, another company has great resources but does not have technology, they can enter into a joint venture that has advanced technology as well as great resources.
Nevertheless, joint venture needs time and effort to build the right relationship. Unlike other alternatives, joint venture requires partners to work together and thus a good relationship is very important. Lack of communication between partners will affect the business.
Partners may have different objectives and this direct their decision and expectation to the joint venture. Different objectives may result in conflict of interest and it may affect the relationship between partners. Thus, it is important to make sure that partners do not have cross-objectives.
Likewise, partners may have different culture and management style. This will cause poor integration and co-operation. Lastly, the partners’ relationship will be influenced. In short, it is important to clarify all the matters before start a joint venture.
Advantages and disadvantage of a joint venture. Retrieved 4 March, 2014, from http://www.rpemery.com/articles/advantages_and_disadvantages_jv.htm
Carter C. (n.d.). The advantages & disadvantages of joint ventures and partner relationships. Retrieved 4 March, 2014, from...