Question

Licensing proprietary technology to foreign competitors is the best way to give up a firm's competitive advantage. Discuss whether you agree or disagree with this statement. Explain your answer in a well-constructed and cogent response.

Answer 1

The statement is basically correct-licensing proprietary technology to foreign competitors increases the risk of losing the technology considerably. Therefore in these situations licensing should generally be avoided. But in some cases licensing may also be a smart option. When a licensing agreement may be designed in such a way as to reduce the possibility of licensees expropriating the technical know-how of a company, otherwise licensing can be acceptable. Another example is where a organization perceives its technical superiority as simply transitory and assumes that rivals are likely to quickly replicate its core technologies.

In such a scenario, the organization may choose to licence its technology to international companies as soon as possible to achieve global recognition for its technology before emulation takes place. A technique like this has other benefits. By licensing its technology to competitors , the company can deter them from developing their own technology, possibly superior. And by licensing their technology, the company can be able to develop its technology as the industry's dominant product. This in turn can provide for a steady stream of royalty payments. However, apart from these situations, the attractions of licensing are likely outweighed by the risk of losing control over technology and licensing should be avoided