The Nature and Determinants of Exclusivity Rights in International Technology Licensing

Zusammenfassung

---

Existing research on international licensing focuses on firm decisions related to the choice of licensing versus alternative modes of entry into foreign markets, the timing of licensing within the technology life cycle, and appropriate compensation structures to collect rents. This paper complements and extends this stream of research by focusing on decisions related to granting exclusive licensing rights to a technology in foreign markets. The decision surrounding licensing exclusivity is based on the consideration of monopoly rents, technology transfer costs and transaction costs. Factors related to the nature of the technology being licensed, the foreign market environment in which it is licensed, and the characteristics of licensor and licensee firms are likely to influence the choice between exclusive and non-exclusive licensing in a particular foreign market. Propositions developed in the paper incorporate the direct and interaction effects of these three set of variables in predicting exclusivity decisions in international technology licensing.

Siehe den Gesamtinhalt dieses Dokumentes

Auszug

---

The Nature and Determinants of Exclusivity Rights in International Technology Licensing

Introduction

Aqueous Pharma Ltd., a U.S.-based company that developed NutraTear technology, which enhances moisture levels of cells on the cornea and conjunctiva and therefore prolongs the time it takes for tear film to break, signed an exclusive licensing agreement with Shanghai Zinox Chemical Technologies Ltd. in the People's Republic of China in 2002 (Ophthalmology Times 2002). Anotiier U.S.-based company, Duraswitch, non-exclusively licensed its electronic switch technology to Printec Electronics, another firm that operates in China, in 2003 (PR Newswire; May 12, 2003). Why did these two U.S. companies enter the Chinese market with divergent licensing strategies? Although existing research in international business has examined the factors that influence the choice between licensing and other modes (e.g., foreign direct investment, joint ventures, exports) for entering foreign markets (Contractor 1985),1 limited attention centers on exclusivity issues, despite evidence that many international licensing agreements involve some form of exclusivity rights as critical clauses (Anand/Khanna 2000, Arora/Fosfuri 2003).

Interfirm technology licensing can extract remaining value from a mature technology (Telesio 1979) and amortize R&D costs (Ohmae 1990). A further advantage of licensing, especially in emerging technologies, is its ability to establish standards and associated network effects, as highlighted in the competitive strategies of firms such as IBM, Ericsson, Intel, Matsushita, Microsoft, Philips, and Sony (Hagedoorn 1993, Hill 1997). Thus, firms experience economic and strategic motivations to disperse their know-how by granting non-exclusive rights to multiple licensees. However, technology licensing also involves transaction and transfer costs (Madhok/ Tallman 1998, Wang/Blomström 1992, Zhao 1997) due to opportunism and bounded rationality (Williamson 1975), which suggests it is constrained by conditions such as costs to licensors. Thus, what factors affect a firm's decision to license its technology to only one or more than one firm?

This article examines the licensing exclusivity decision of a firm that has successfully commercialized its technology in its domestic market and is considering entering a foreign market through licensing. Exclusive licensing can create a monopoly if no close substitutes exist, whereas non-exclusive licensing increases competition. In turn, licensing exclusivity represents an important concern for licensors as well as licensees. For licensees, it pertains to their ability to maintain a competitive position and enjoy a monopolistic profit, whereas for licensors, the main concern centers on maximizing their strate...

Siehe den Gesamtinhalt dieses Dokumentes

---