Question

Licensing has become a more profitable venture for international companies because

A. the agreements eliminate competition in foreign sales

B. the federal goverment pressed foreign governments to enforce patent laws.

C. technology has provided the mean to ensure accurate reproduction of products

D. consumers are wiser and wont accept cheap copies

Answer 1

Licensing is synonymous to franchising in many senses. It is a process by which well known businesses can make presence in local markets without investing a penny. Licensing helps to leverage existing production, distribution and marketing systems that other local firms may have spent considerable time in building. This is done by providing licenses to local manufacturers to sell goods under the company's brand name. The quality and standards of the product are maintained by mandating the manufacturer to follow the manuacturing practices and other activities like material quality, etc as per the business providing license. For eg, Well known New york based company Calvin klien only produces female apparels but its 90 % of the sales come from licensing the designer's name to makers of underwear, jeans and perfume. Next big question is how do the licensing helps earn-  Big companies that provide licenses share some % of revenue as per the licensing agreement earned by the local firms selling the products or services under the brand name of the big company. Licensing fees typically amount to a small percentage of the sales price but can add up quickly.

The question asks the reason why Licensing has become a more profitable venture for international companies as "because" is used. So the answer would be

c. technology has provided the mean to ensure accurate reproduction of products: to sell a product or service under a brand name the quality is to be similar as the known product.

option a. is the effect of licensing as it helps increase market penetration