Licence sale
Licence sale is a transfer abroad upon a foreign investor of so-called immaterial and legal values counted among as follows:
technical solutions protected by patent;
technological solutions protected by patent;
organisational solutions protected by patent;
know-how;
trade brand;
trademark (logo);
publishing right.
Granted licences may be divided into the following types:
exclusive licences a licensee is authorised to use the licence excluding other persons and a licensor is obliged not to grant the licence to other persons. The agreement of exclusive licence must be drawn up in writing under pain of invalidity. Such a form of granting a licence appears rather rarely in economic practice, and most frequently relates to contracts for performing individual banking systems; in which case the licence agreement results from an agreement for performing a specific task on the basis of which a company finalises the order for delivering, for instance, a software. The agreement of exclusive licence means therefore that in a given area the licensee holds a monopoly on using the patent, invention, technical and technological thought or trademark;
non-exclusive licences that do not limit a licensor in any way within the scope of granting the licence concerned to other persons. They also do not require a written form. Such an agreement may be concluded in any form, even orally, nonetheless, both parties to the agreement must determine that it aims at granting a licence for a specific invention, computer programme or other thing. A non-exclusive licence may be granted simultaneously to several licensees in the same area;
full licences appear when a licensee may with no limits, within the same scope as
a licensor, use the object of the licence agreement;
incomplete licences a licensee has a right to use the object which was granted
the licence, in a narrower scope than a licensor;
sublicence consists in granting, by a subject possessing a licence, a further licence to third party. Law does not provide a licensee with the possibility of granting sublicence, unless in the primary licence agreement there was a clause included providing for such
a right. Furthermore, sublicence can not include a wider scope than a licence it was based on;
open licence a person authorised to patent may submit at the Patent Office
a declaration of readiness to grant a licence for using their invention. An example is the licence applied by Microsoft company, called Microsoft Open Licence which consists in
an indefinite licensing of Microsoft software, intended for all business entities (fig. 2.1).
If one wants to use the licence, one must consider financial costs. Making available the aforementioned immaterial and legal values is charged with a licence fee, referred to as royalties. Usually it amounts to about 5% of sale net income. However, the licensee may count on technical assistance, consultancy and organisation of trainings from the part of the licensor.
The duration of licence agreement is from five up to ten years.
Sale of licence is less
profitable than export of goods and services produced with its use. Nevertheless, it is worth using when:
there exist high limits in export from the mother country (tariff bariers and non-tariff bariers);
there exist high costs of transport and goods distribution;
there occurs a rapid development of technologies and the licence becomes outdated very quickly;
a company lacks financial means for the development of export activity or for direct foreign investments;
a company may receive quickly a return of research and development costs.
Franchising
A specific form of licensing is franchising which comes from English franchise, that is a privilege. Franchising is a long-term granting of permission, licence, consent to offer the franchisors products and using their busines name, trademark, companys logo, applying prices of products accepted by them. Therefore, it may be said that franchising is a marketing package (programme) which the franchisee may use in the time specified by the agreement and in the determined area in return of a certain fee established usually as interest on sale of products or services (similarity to licence).
In the franchising agreement (it is not regulated by the provisions of civil law) the following elements are included:
programme of sale;
committing of a franchisor to instruct a franchisee;
granting by a franchisor a support while establishing the companmy;
current consultancy;
participating of a franchisee in the system of advertisements organised by a franchisor;
committing of a franchisee to apply recommendations and requirements as to production and sale of goods and services;
committing a franchisee to incur charges regarding the use of franchising.
Among the basic types of franchising the following are distinguished:
direct franchising is a contract between a franchisor and frenchisee, frequently used in case of connections between foreign companies (international franchising). Such a system is very profitable for an exporting company, but difficult to manage and control, especially if franchisees are in a faraway country. In that case there is a danger of ill-communication between the subjects, negligent or inappropriate use of franchising by its franchisee, and in consequence a danger of not adjusting products to the needs raised by market;
master franchising is an agreement between a franchisor and master franchisee, which includes a construction of chain in the area of master franchisee. The master franchisee possesses exclusive rights to use the trademarks and know-how in a given area. It is used, above all, in countries where running business activity is definietly different from the one that is in effect in the franchisors mother country;
mixed franchising when a franchisor is a producer and a franchisee deals with sale of products and renders services connected with goods sold (cosmetic companies which start sale points and beauty parlours).
Fees to be incurred by a franchisee are as follows:
initial franchise fee fee collected by a franchisor upon signing the agreement;
royalty monthly fee in the form of a fixed amount or interest on sale;
advertising fee fee for advertising purposes.
At present in
Poland operate 257 franchising systems and their number is still rising. In 2002 in Poland appeared 26 chains, in 2003 27, in 2004 already 39, and in 2005 all of 64 chains. These chains concentrate above all in such sectors of economy as: trade, services, production.
An innovation are so-called agency systems which concentrate above all in two sectors of Polish economy: finances and trade. The examples of agencies are branch offices (agencies) of PKO BP, post office outlets of Dominet Bank or BPH Bank. In the other sector, the smaller grocers and industrial shops, e.g. abka chain.
An agency agreement consists in that the agent accepting a mandate agrees permanently to act as an agent in concluding agreements with clients to the benefit of the mandator giving the mandate who in return for this service pays to the agent a fixed comission.
However, one must remember that the decision on becoming a franchisor is not always correct and accurate.
Leasing
Leasing that is handing over, for a fee, material goods for use, consists in concluding a civi-law agreement, on the basis of which one of the parties referred to as a leaser or financing party hands over to the other party, referred to as a leaseholder or user, goods for use.
A leasing agreement may refer to:
1. a transfer of an object to be used by a leaseholder;
2. a transfer of right to use an object of leasing and make profits of it.
Leasing may be for instance one of the methods of financing transaction or a form of sale of goods.
Types of leasing:
operating leasing also referred to as a maintenance leasing or service leasing where goods that are the object of leasing after the agreement expiration return to their initial proprietor because leasing fees are not sufficient to cover the value of the object used;
financial leasing also referred to as capital leasing or investment leasing. It concerns mainly goods of significant value and a leasing agreement is drawn up for a long period of time. Due to the fact that usually the duration of leasing is similar to economic period of object wear and tear, the value of the leasing object becomes low. The object after the agreement expiration remains at its current user or a licensor provides a licensee with
a possibility of pre-emption at a low price;
clear leasing all costs connected with use, repair, maintenance and insurance of
the object rest with the leaseholder;
full leasing all costs connected with use, repair, maintenance and insurance of
the object rest with the leaser;
Worth remembering!!!
A foreign mother company gives for leasing to its daughter company that functions in a different country, e.g. machines and devices. Then leasing instalments become a method of exporting profit abroad and one may avoid taxing.
Managerial contract
Managerial contract, referred to as a contract for managing a company is a civil-law agreement that concerns broadly-defined services connected with managing a company or its part within the scope determined by the agreement concerned. It is entered into between a mandator companys proprietor and a manager possessing required knowledge and experience meeting the mandators requirements. Likewise in leasing or franchising, a managerial contract belongs to the group of contracts determined in civil law as innominate contracts. These contracts are regulated by
the article 750 of the Polish civil code which says that while rendering services that are not regulated by other provisions of law, the provisions on mandate shall be in force. Hence, in a simple way it may be indicated that the managerial contract is similar to the contract of mandate in terms of law.
Worth remembering!!!
The object of managerial contract is a service that consists in managing someone elses company on behalf of the mandator of managing (entrepreneur) or on their own behalf, to the benefit and in
the interest of the entrepreneur, for their account and at their risk, for a given remuneration.
Types of managerial contracts:
contract for managing a state-owned enterprise or privately owned enterprise;
contract for definite or indefinite period of time;
contract for managing a whole enterprise or its part;
contract with a natural person or legal person;
contract as a civil-law agreement or employment relationship;
contract with the indication of a specific target to achieve, e.g. restructuring, privatisation and sale.
In what way a managerial contract can be used in international relations? It is a well-known fact that the states around the world are characterised by various stages of economic development. Likewise entreprises which function in these states. Some of them are developed better, more technologically advanced, managed with use of newest knowledge, whereas others will only want or will be forced to implement changes. In this situation, employing a manger on the basis of a managerial contract is the best solution because it enables know-how transfer between enterprises from different countries and using knowledge that is already owned by someone. The situation is similar when a foreign investor appears in a foreign country. The foreign investor does not possess any knowledge of customs, provisions, requirements, manner of company running and other basic and indispensable details to run business activity.
Employing a local manager who possesses such knowledge, it is faster, easier and cheaper to start business activity on a foreign market.
Ordered production
One of the most popular forms of appearing on foreign markets in Poland is production for order (ordered). It consists in that a foreign contractor seeks on the local market a company which would undertake performing (producing) goods in accordance with the specification submitted by them.
The most important element which decides on the selection of a producer is certainly the price the lower price, the higher likelihood to be selected by the foreign contractor. The advantage of this form of appearing in the international arena is the fact that the enterprise does not need in that case considerable capital expenditures because frequently the mandator deliver products or half-finished products themselves, out of which a given good is to be made. The asset is also low commercial risk, which in case of small enterprises is appreciated.
The best solution in the first period is production for order for the needs of other companies, gaining experience, appearing on the market, and then ones own attempt to expand on the foreign market by means of direct export which may bring the company much higher profits although it is certainly much more risky.
Among main flaws of ordered production there is a very low production profitability due to strong pressure of the
foreign entrepreneur for lowering unit prices of goods, which frequently ends up with so-called production at cost (without profit) or even loss may occur. The company has also a very weak contact with foreign markets and does not gain experience in this field.
Establishing a turnkey plant
One of the last possibilities of enterprise internationalisation, discussed here, is establishing a turnkey plant. This term is mainly associated with residential housing when purchasing a housing unit, a developer after completing work hands over to the purchaser a ready to live-in unit, giving its keys to them. Likewise with a plant (company). This form of activity consists in comprehensive completing the investment abroad, the result of which will be constructing a production plant or a building (office) of the company.
The mandatory is one enterprise that becomes a general contractor for the task or several enterprises forming a consortium. The agreement drawn up between the partners determines clearly the scope of mandatorys duties.
The mandatorys tasks are usually as follows:
preparing documentation in terms of the project, architecture and trade;
fixing necessary legal, administrative and technical formalities;
selecting contractors (subcontractors), providing equipment for investment completion;
technical supervision over project completion;
handing over the building to the mandator;
equipping the plant;
employing and instructing the local personnel;
technical assistance in launching the building;
maintaining the plant in production readiness;
delivery of necessary materials for production on a regular basis;
taking over managing of the company for a definite period of time.
Building a turnkey plant as compared to other possibilities presented in here is very difficult and requires from the mandatory considerable capital expenditures and a great number of personnel as well as versatility, very good knowledge and familiarity with a local market. Certainly profits are an incentive to undertake such activities, which by virtue of the size of the implemented undertaking, are usually very high. Moreover, solid and thorough completion of the task may turn out to be a good advertisement for the company and strenthen its position on a given market.
