Licensing offers entry to foreign markets without the company entering the market assuming the same level of risk as with a joint venture or strategic alliance. In a licensing arrangement, the company granting the license (the licensor) gives certain rights and access to a company in the target market. This licensing agreement typically covers patents, company name, processes and similar intangible assets. In return, the licensee pays royalties on each item sold (typically, although some other license arrangements can be implemented) back to the licensor. The licensor has control over the selection of licensees, and can use that control to exert influence since if the licensee does not meet expectations, a new licensee can be found. Licensing agreements are mutually beneficial to both parties since the licensor gains the royalty revenue and the licensee gains access to technology or products which would otherwise be unavailable.
A joint venture is an equity partnership between companies from two different countries. The two companies pool resources and know-how in order to create a third company which meets specific needs of both companies. In some cases, two companies with complementary strengths will form a joint venture in order to take advantage of lower labor costs in a third nation, or to gain access to a new market. This is the situation with Hitchiner where the American company sought to gain access to Latin America and lower labor costs while the Mexican company sought access to Hitchiner's quality processes and technique. Joint ventures work best when the relationship between the two organizations is expected to last for more than a few years and when there is a goal, such as reducing manufacturing costs, which cannot be met by simple exporting or licensing.
Strategic alliance arrangements integrate two companies to such a degree that it is sometimes difficult to determine where one company's operations end, wh...