Hi guys. Welcome back to Global Business Environment, course two. This is module four and part three of that module. In this module, we've been talking about organizing and structuring your company to enter a foreign market. We've been trying to understand when and how you might enter a foreign market, assuming your company and its managers and executives. Or your small business and entrepreneurs have decided that's the way to go. That's going to be your strategy moving forward. In the middle here we have an option for market entry called licensing. And licensing might, might describe to you one thing, but it actually includes probably a larger category than, than the word license implies. Licensing includes franchising and other similar forms of entry into foreign markets. Let's talk about a couple of examples of licensing or franchising as a way to enter a foreign market. We see it because it's in the middle, licensing and again franchising is included there, is a more committed way of entering a foreign market than simply exporting. It offers more profit potential and it also offers more control than exporting. But it's not as committed as making a direct investment. What do we mean when we talk about licensing? Let me, let me give you an example. I have an image here of a logo that says officially license collegiate products. In here in the United States, university sports teams are very popular. And universities make a lot of money from their sports teams. Some of them actually lose money too, but the, the sports teams are very important to universities and very important to the students. I'm showing you a page to the UNM, the University of New Mexico book store, and I'm showing you some officially licensed apparel or clothing from the United, University of New Mexico. How does that work? Does the University of New Mexico which is a college or university that teaches students and conducts research. Does it actually own a factory where this clothing is made? no, of course not. The University of New Mexico instead, licenses to companies such as Nike, you can see the Nike logo here the right to use University of New Mexico logos such as these, which are protected. And Nike can put on a product that it makes, like a hat or a shirt, that is an officially licensed product. What is the benefit to the university if Nike is the one making it, how does the university benefit? Well, in this case the University of New Mexico would receive a small percentage of the sale of the items. So Nike makes the sale but or makes the product the bookstore makes the sale but Nike receives its profit margin. But also the University of New Mexico receives a license for the use of its logo. So what we're talking about when we talk about licensing, is the use of some content or property or system that's been developed and has value, and allowing someone else to use it in a way that you, as the owner of the property, have established is valid. In the case of apparel and clothing, it's not true that Nike is the only company that make officially licensed University of New Mexico clothing. In fact lots of companies around the world have started up, and who are wiling to pay for the rights to use these logos and pay the licensing fee and have started up. And sometimes in foreign locations, oftentimes using foreign labor so they, they, there is a international component to this example. But they're they're starting up and utilizing this property that someone else owns. And they have to comply with the standards that the university sets. When you look at a company such as Marriott, which is a hotel chain that has hotels all over the world. This is a picture of a, of a Marriott Hotel in Europe. Does Marriott own all of these hotels? Does Marriott invest the billions and billions of dollars that it would take to buy the real estate? Buy the property and then construct each of these hotels? No. Marriott, in fact, is a license company. It has developed a system, a brand that has great value. That it owns and it licenses to entrepreneurs, investors in foreign markets who are willing to comply with certain standards, they license to them the right to use the Marriott brand and system. The same goes with their example of Domino's Pizza or Pizza Hut. Domino's Pizza, in foreign markets, are not stores that are owned by Domino's Pizza, the corporation. They are franchises, they are owned by local people who understand the market, they understand how to hire and work with individuals that understand the local preferences. But they're able to use the Domino's brand, recipes and system by paying a fee. Typically a franchise fee by the way is about 4 to 6% of gross sales for the right to use that system. These companies are entering these foreign markets in this way because they don't have the resources, or aren't willing to commit them or to take the risk themselves. They're able to get into a lot of markets very quickly by selling the rights or licensing the rights to their brand and their system, their property to others, other investors, other entrepreneurs. And so licensing or franchising is a very popular way of entering foreign markets. Companies all over the world are developing brands and ideas and products that are successful, and then licensing the right to develop them in other markets around the world. And so franchising, licensing, very important way to understand market entry and as a port mode of entry. It might be of interest to some of you in your future careers, and so I'd like to give special emphasis to it in this, this class. So thank you very much for your participation. This has been part three. We'll come back in part four and talk more about direct investment abroad. See you next time.
