Knowledge Bank

Empirical evidence shows international licensing of the production and marketing of branded food and related products to be an important aspect of the globalization of the food industry. For example, Coca-Cola and Pepsi-Cola license the canning and distribution of their final products in overseas markets, Anheuser-Busch and Miller license production of various of their beer brands, Nestle chocolate products are manufactured under license in the U.S. by Hershey. The purpose of this paper is twofold; first, in Section 1 empirical evidence on the extent of international licensing is presented. Second, recent theoretical literature on licensing has dealt only with the licensing of process technologies, Section 2 considers the possible motives for branded product licensing using a simple game-theoretic structure. The results suggest imperfect competition in overseas markets and imperfect information may be important determinants of international product licensing. For a licensor, product licensing can be treated as a substitute for either exporting or direct foreign investment, or as part of a long-term strategy for overseas market development. For a licensee, licensing may represent either a lower cost method of product line extension or/and a means of discouraging market entry by a foreign competitor.