3.2 Cooperative Contracts when an organization wants to expand its business globally without making a large financial commitment to do so, it may sign a cooperative contract with a foreign business owner who pays the company a fee for the conduct that business right to in his or her country. There are two kinds of contracts -licensing and cooperative franchising
Under a licensing agreement, a domestic company, the licensor, receives raiment’s for allowing another company, the licensee, produce its product, totality sell its service, or use its brand name in a particular foreign market. In India, the MURMNI GROUP licenses Tommy Hilfiger products. In the last 3 Murrain years, has built ten new Hilfiger retail stores in India that produce between $20 and $25 million in annual revenues.
One of the most important advantages of licensing is that it allows companies to earn additional profits without investing more money. As foreign sales increase, the royalties paid to the licensor by the foreign licensee increase. Moreover, the licensee, not the licensor, invests in production equipment and facilities to produce the licensed product. Licensing also helps companies avoid tariff and nontariff barriers. Since the licensee manufactures the product within the foreign country, tariff and nontariff barriers don’t apply. For example, Britvic Corona is licensed to bottle and distribute Pepsi-Cola within the United Kingdom. Because it bottles the soft drink in Britain, tariff and nontariff barriers do not apply.