You should consider two alternative ways of obtaining international sales income: technology licensing and joint ventures. Although not necessarily the most profitable forms of exporting, they do offer certain advantages, particularly for small and medium-sized businesses.
Technology
Licensing
Technology licensing is a contractual arrangement in which the licenser’s patents, trademarks, service marks, copyrights, trade secrets, or other intellectual property may be sold or made available to a licensee for compensation that is negotiated in advance between the parties. This compensation may be a lump-sum royalty, a running royalty (royalty that is based on volume of production), or a combination of both. U.S. companies frequently license their technology to foreign companies that then use it to manufacture and sell products in a country or group of countries defined in the licensing agreement.
A technology licensing agreement usually enables your firm to enter a foreign market quickly, and it poses fewer financial and legal risks than owning and operating a foreign manufacturing facility or participating in an overseas joint venture. Licensing also permits U.S. firms to overcome man of the tariff and non-tariff barriers that frequently hamper the export of U.S.-manufactured products. For these reasons, licensing can be a particularly attractive method of “exporting” for small companies or companies with little international trade experience, even though small and large firms profitably use this technique. Technology licensing may also be used to acquire foreign technology through cross-licensing agreements or grant-back clauses that award rights to improved technology developed by a licensee.
Joint
Ventures
In some cases, joint ventures provide the best partnerlike manner of obtaining foreign trade income. International joint ventures are used in a wide variety of manufacturing, mining, and service industries, and they frequently involve technology licensing by the U.S. company to the joint venture.
Host country laws may require that a certain percentage (often 51 percent or more) of manufacturing or mining operations be owned by nationals of that country, thereby limiting U.S. companies’ local participation to minority shares of joint ventures. Despite such legal requirements, as a U.S. firm you may find it desirable to enter into a joint venture with a foreign firm to help spread the high costs and risks frequently associated with foreign operations. The local partner will likely bring to the joint venture its knowledge of the customs and tastes of local consumers, an established distribution network, and valuable business and political contacts.