Licensing Licensing involves an entrepreneur who is a manufacturer (licensee) giving a foreign manufacturer (licensor) the right to use a patent, trademark, technology, production process. or product in return for the payment of a royalty. The licensing arrangement is most appropriate when the entrepreneur has no intention of entering a particular market through exporting or direct investment. Since the process is low risk, yet provides a way to generate incremental income, a licensing agreement can be a good method for the entrepreneur to engage in international business. Unfortunately, some entrepreneurs have entered into these arrangements without careful analysis and have later found that they have licensed their largest competitor into business or that they are investing large sums of time and money in helping the licensor adopt the technology know-how being licensed
Turn-Key Projects Another method by which the entrepreneur can do international business without much risk is through turn-key projects. The underdeveloped or lesser-developed countries of the world have recognized their need for manufacturing technology and infrastructure and yet do not want to turn over substantial portions of their economy to foreign ownership. One solution to this dilemma has been to have a foreign entrepreneur build a factory or other facility, train the workers, train the management, and then turn it over to local owners once the operation is going-hence the name turn-key operation.
Entrepreneurs have found turn-key projects to be an attractive alternative. Initial profits can be made from this method, and follow-up export sales can also result. Financing is provided by the local company or the government, with periodic payments being made over the life of the project.
MANAGEMENT CONTRACTS A final nonequity method the entrepreneur can use in international business is the management contract. Several entrepreneurs have successfully entered international business by contracting their management techniques and skills. The management contract allows the purchasing country to gain foreign expertise without giving ownership of its resources to a foreigner. For the entrepreneur, the management contract is another way of entering a foreign market without a large equity investment