Introduction
Licensing is the granting of rights to another or individual, for a fee, whereby the firm that has been granted to sell and produce the products or services by the licensing company. Licensing provides a way of expanding the products but with minimal costs on the innovating company, and minimized research and development costs for the firm buying the license. Licensing is beneficial and especially when applied globally as the market of the product is extended to the world.
Supports in Innovation
Licensing, joint ventures, and mergers and acquisitions do help in innovations in that not all companies can afford the costly investments that are required for the Research and Development of new products. Thus the joint ventures and mergers and acquisitions assist by providing the economies of scale required to cover these costs. When two firms join forces in a merger or by acquisition, their strength in terms of capital and resources is increased, and hence the power to invest is also increased (Christensen, 2010). These two companies that have merged either by acquisition, a joint venture also combine other resources, including the market and human resources factor. Where these firms are in different countries, they again gain the advantage of a ready market and easy accessibility to consumers, considering also the cultural barriers having been removed.
Types of Licensing
Licensing can be incremental, radical, and even disruptive innovation. Incremental innovation is based on the already existing knowledge and resources and where any technological changes in innovation are modest (Moore, 2005). The existing products remain competitive in the market. A firm will grant a license to another firm to license it to use its products or services. This license can be to sell a product that compliments the services provided by the licensed firm, which improves on the already existing products. An example is Nokia providing license rights to mobiles phone service providers to sell their products to a set of consumers of mobile phone consumers. Licensing becomes radically innovative where the licensed firm has been granted the rights and introduces completely new knowledge and new resources in providing the services and whereby the technological changes are new and completely different from what was previously in the market (Chesbrough, 2003). The existing products are non-competitive with this new product. The licensing company will provide a license in such cases where they want to provide a new product in a foreign market but without investing in this foreign market. The firm will thus grant a license to this firm at a fee. An example is where the new technology of iPad which is an innovation and Apple granting a license to a certain firm in each country to be the sole seller of iPad in that country.
Disruptive Innovations
Disruptive innovations are an improvement of the already existing products and services but with the purpose of targeting a different set of consumers. The innovation is based on the existing applications which are at the bottom of the market of a product or service, starting with a small market, and gradually moving upmarket, and eventually displacing the existing competitors. The innovation can be either by lowering the prices of the product or service or coming up with different designs to fit this new targeted market (Porte, 2005). A firm can engage in disruptive innovation by buying an exclusive license to sell or produce a new innovation since these new innovations may be too expensive for a single company. An example is the licenses that are granted to produce copywrited music and movies to small firms and individuals.
Conclusion
Licensing is meant to improve and increase the marketability of the movies and movies to a wider market, at a reduced cost. This is the method that I would choose because the continuous changes in technology and new products being introduced in the market, allows for easy adaptability. It becomes cheaper to buy licenses for the new products than it is to invest in the Research and Development of a new product.
References
- Chesbrough, H. (2003). Open Innovation: The New Imperative For Creating And Profiting From Technology.
- Christensen, C. (2010). Key Concepts: Disruptive Innovation.
- Moore, G. (2005). Dealing with Darwin: How great companies innovate at every phase of their business. New York: Penguin.
- Porte, A. (2005). International Workshop on Accelerated Radical Innovation: What is Accelerated Radical Innovation?