Bilateral Payment

Bilateral Payment A payment type, indicating arrangements where a payment bank settles its payment obligations on a net basis with each of its counterparty banks separately.

Bilateral Payments Arrangment (BPA)

BPA is a scheme for the settlement of net monetary obligations arising from trade between pairs of countries. BPA consists of 2 important elements: 

The undertaking of sovereign risks by the Central Banks to facilitate settlement of monetary obligations among commercial banks in both countries arising from trade

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The undertaking by the Central Banks of both countries to settle the net balance arising from the trade conducted between the two countries

FEATURES 

Periodic settlement of net balance between signatory Central Banks

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Central Banks grant net credit limit to each other

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Letters of Credit (LCs) must be marked with special reimbursement clause

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Trade transactions are carried out through the existing financial or banking system

BENEFITS 

Guaranteed payments in domestic currency for exports and elimination of the credit risk and exchange risk

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Greater confidence to trade with developing countries

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Easier access to banking facilities

Benefits 

Enables importers and exporters to venture into new and emerging markets

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Payment guarantee is provided by the central bank converting commercial risk into sovereign risk

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Develop new trade links at a lower cost. For example the exporter will not require Letter of Credit confirmation

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Cost savings enhance price competitiveness

franchising Definition Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains (1) immediate name recognition, (2) tried and tested products, (3) standard building design and décor, (4) detailed techniques in running and promoting the business, (5) training of employees, and (6) ongoing help in promoting and upgrading of the products. The franchiser gains rapid expansion of business and earnings at minimum capital outlay. Franchise Agreement The legal document between the Franchisor and the Franchisee that governs the relationship between the two entities for a specified period of time. It frames the relationship in a concise manner. Franchisee A person or entity to whom the right to conduct a business is granted by the franchisor or licensor. Franchisor The company owning/controlling the rights to grant franchises to potential franchisees.

TYPES OF FRANCHISES Business format franchises 

the most common type, a company expands by supplying independent business owners with an established business, including its name and trademark. The franchiser company generally assists the independent owners considerably in launching and running their businesses. In return, the business owners pay fees and royalties. The franchisee also often buys supplies from the franchiser. Fast food restaurants are good examples of this type of franchise.

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In business format franchises (which are the most common type), a company expands by supplying independent business owners with an established business, including its name and trademark. The franchiser company generally assists the independent owners considerably in launching and running their businesses. In return, the business owners pay fees and royalties. In most cases, the franchisee also buys supplies from the franchiser. Fast food restaurants are good examples of this type of franchise. Prominent examples include McDonalds , Burger King, and Pizza Hut.

Product franchises 

manufactures control how retail stores distribute their products. Through this kind of agreement, manufacturers allow retailers to distribute their products and to use their names and trademarks. To obtain these rights, store owners must pay fees or buy a minimum amount of products. Tire stores, for example, operate under this kind of franchise agreement.

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With product franchises, manufactures control how retail stores distribute their products. Through this kind of agreement, manufacturers allow retailers to distribute their products and to use their names and trademarks. To obtain these rights, store owners must pay fees or buy a minimum amount of products. Tire stores, for example, operate under this kind of franchise agreement.

Manufacturing franchises 

a franchiser grants a manufacturer the right to produce and sell goods using its name and trademark. This type of franchise is common among food and beverage companies. For example, soft drink bottlers often obtain franchise rights from soft drink companies to produce, bottle, and distribute soft drinks. The major soft drink companies also sell the supplies to the regional manufacturing franchises.

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Through manufacturing franchises, a franchiser grants a manufacturer the right to produce and sell goods using its name and trademark. This type of franchise is common among food and beverage companies. For example, soft drink bottlers often obtain franchise rights from soft drink companies to produce, bottle, and distribute soft drinks. The major soft drink companies also sell the supplies to the regional manufacturing franchises. In the case of Coca Cola, for example, Coca Cola sells the syrup concentrate to a bottling company, who mixes these ingredients with water and bottles the product, and sells it on.

THE ADVANTAGES OF FRANCHISING Franchisers benefit from these agreements because they allow companies to expand much more quickly than they could otherwise. A lack of funds and workers can cause a company to grow slowly. However, through franchising a company invests very little capital or labor, because the franchisee supplies both. A company also can ensure it has competent and highly motivated owner/managers at each outlet through franchising. Since the owners are largely responsible for the success of their outlets, they will put a strong, constant effort to make sure their businesses run smoothly and prosper. In addition, companies are able to provide franchising rights to only qualified people.

THE DISADVANTAGES OF FRANCHISING In return for the benefits franchisees receive, they must pay fees and royalties to the franchisers. The franchise fee may range anywhere from $5,000 to over $1 million and hence can be a major expenditure. Besides the franchise fee, franchisees often must pay royalties periodically during the life of the franchise agreement. Royalty payments are either a percentage of an outlet's gross income—usually under 10 percent of an outlet's gross income—or a fixed fee. Franchise costs vary to some extent because of costs associated with different kinds of businesses and with different locations. For example, a person who wishes to open a franchised employment service operation, such as Talent Force, based in Atlanta, Georgia, can get away with as little as a $7,500 fee, plus one year's starting capital investment of $50,000 to $110,000. On the other

hand, start-up costs for a company like J.O.B.S., based in Clearwater, Florida, can be as little as $45,000, including a $30,000 franchise fee.

Advantages And Disadvantages Of Franchising A. Advantages from the Franchisor’s point of view: 1. Financial: Franchising creates another source of income for the franchisor, through payment of franchise fees, royalty & levies in addition to the possibility of sourcing private label products to franchisees. This capital injection provides an improved cash flow, a higher return on investment and higher profits. Other financial benefits that the franchisor enjoys are reduced operating, distribution and advertising costs. Of course that also means more allocated funds for research and development. Additionally, there will always be economies of scale with regard to purchasing power. 2. Operational: The franchisor can have a smaller central organization when compared to developing and owning locations themselves. Franchising also means uniformity of procedures, which reflects on consistency, enhanced productivity levels and better quality. Effective quality control is another advantage of the franchise system. The franchisee is usually self motivated since he has invested much time and money in the business, which means working hard to bring in better organizational and monetary results. This also reflects on more satisfied customers and improved sales effectiveness. 3. Strategic: To the franchisor, franchising means the spreading of risks by multiplying the number of locations through other people’s investment. That means faster network expansion and a better opportunity to focus on changing market needs, which in its turn means reduced effect from competitors. 4. Administrative: With a smaller central organization, the business maintains a more cost effective labour force, reduction of key staff turnover and more effective recruitment. B. Advantages from a Franchisee’s point of view: 1. Avoiding the unnecessary trial and error period in starting and operating a new business. 2. Lower financial risk, compared to other ventures, because investment costs are lower and profit margins are higher. 3. Business Format Franchising complete packages ensure a ready to go “turn-key” franchised unit.

4. Managing a small business whilst depending on the power of the franchisor company which has a bigger organization. 5. The franchisee has an opportunity to run a proven business concept with a successful operational track record. 6. The opportunity to learn the latest developments and changes in the local and global market from the franchisor and focus entirely on developing the sales revenues. 7. The benefit of operating under a recognized trade name/trademark, which can have better marketing results. 8. The franchisee has access to accumulated business experience and technical know-how in managing the business. 9. A unified store design which leverages the business reputation in marketing the concept. 10.Easier purchasing, storing, and product display systems. C. Disadvantages from a Franchisor’s point of view: 1. Considerable capital allocation is required to build the franchise infrastructure and pilot operation. At the beginning of the franchise program, the franchisor is required to have the appropriate resources to recruit, train, and support franchisees. 2. At the beginning of the franchise program there is a broader risk that the trade name can be spoiled by misfits until such time the franchisor is capable of selecting the right candidate for the business. 3. There is a risk that franchisees exercise undue pressure over the franchisor in order to implement new policies and procedures. 4. The franchisor has to disclose confidential information to franchisees and this may constitute a risk to the business. D. Disadvantages from a Franchisee’s pint of view: 1. The requirement to pay the franchise fees and royalty to the franchisor, which in some cases can be exaggerated. 2. The transfer of all goodwill built in the local market to the franchisor upon expiration or termination of the franchise contract. 3. The necessity of abiding by the franchisor’s operating systems, standards, policies and procedures. 4. Reduced corporate profit margin due to payment of royalties and levies.

Licensing 

The granting of permission to use intellectual property rights, such as trademarks, patents, or technology, under defined conditions.

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Contractual agreement between two business entities in which the licensor permits the licensee to use a brand name, patent, or other proprietary right, in exchange for a fee or royalty.

Types of Licensing Character and entertainment licensing Character and entertainment licensing is one of the largest segments of the licensing business, and is probably the part most recognized by the general public. Although the predominance of character and entertainment licensing in the merchandising industry lessens somewhat as other types of licensing emerge and flourish, this is still one of the most prominent. This category of licensing encompasses properties springing primarily from feature films, television shows, videogames and online entertainment. (Characters and franchises that are created via books are also a popular licensing category, but are generally classified as “publishing” properties for the purpose of LIMA’s numbers.) While at one point the business was dominated by a handful of large entertainment organizations and publishers (mostly U.S.-based), the world has changed somewhat, with popular characters being produced by companies from around the globe. The largest portion of the entertainment and character licensing business is aimed at children through a broad range of merchandise categories such as toys, apparel, publishing, food and beverages, videogames and electronics, among many others. Child-targeted entertainment and character properties also often play a large role in promotional licensing, but the category also features adult-targeted classic characters whose appeal is centered on a nostalgia factor, and even some child-oriented properties are marketed secondarily to adult audiences by creating a “cool” factor around them.

Corporate trademark and brand licensing The licensing of company names, logos, or brands (referred to as corporate trademark/brand licensing) is one of the fastest-growing segments of the licensing business. Much of the growth is spurred by the fact that licensing provides enormous strategic, marketing and earning benefits to both licensor and licensee. An ever-increasing number of major corporations in the trademark/brand sector are using their corporate trademarks and brands to build marketing visibility for a core brand by licensing its use in non-core businesses; to protect the company’s trademarks; to enhance their brand images; to increase their brand exposure; and to generate extra revenues and profits. For a brand owner, licensing offers a way to achieve any or all of those goals without making a large upfront investment in internal product development and manufacturing. The realm of brand licensing stretches from the rather mundane of featuring a corporate logo on a tshirt to much more sophisticated integrated marketing and product development efforts in which a brand is extended into new product areas in ways that are seamless to consumers.

Fashion licensing The licensing of designer fashion names and brands into such categories as apparel, fashion accessories, health & beauty aids and home goods is one of the best known facets of the business. In some cases a fashion label may exist only as a license – even the main “core” apparel categories are licensed to third parties for manufacturing, marketing and distribution. The designer or brand owner is responsible for creating the design direction and the marketing umbrella that defines the brand’s appeal. In most other cases, however, the designer or brand owner creates, markets and manufactures specific core categories, and uses licensing as a way of extending the brand into tangential areas such as other apparel areas (i.e. outerwear or intimate apparel), accessories (i.e. belts, headwear, watches, luggage and footwear), fragrances and beauty products, or home fashions.

Fashion licensing is meant to be invisible to the consumer, who is not to even consider that a third party licensee is making the products that carry the designer’s name. Of course, in a well-executed, tightly run licensing program, the brand owner maintains strict control over design and quality, and the licensee manufactures and the agreed upon specifications, so the brand image is seamlessly maintained.

Sports licensing Sports licensing has grown in scope and sophistication over the past decade, and is one of the top four revenue producers in the licensing world. In the U.S., the business is dominated by the four major sports leagues — National Football League, Major League Baseball, National Basketball Association and the National Hockey League – along with NASCAR. Each of those leagues runs the licensing business on behalf of its teams out of a centralized league office. Other significant licensing campaigns surround smaller professional sports leagues (i.e. Major League Soccer, Minor League Baseball), organizations such as the U.S. Olympic Committee and the National Collegiate Athletic Association (NCAA), and major sports events such as the Olympics and soccer’s World Cup. In addition more than 300 colleges and universities in the U.S. are involved in collegiate licensing, marketing their rights primarily to the apparel market with sometimes very respectable revenues, depending on the performance of their sports teams and the size of the university or college.

Art licensing The art licensing community is relatively small and fragmented compared to the other major categories of licensed properties. Art licensing encompasses everything from individual artists who support their artistic endeavors via licensing to well-established businesses that create art and design specifically to decorate a wide range of products, including prints, home décor, housewares, home textiles, publishing, giftware, apparel – literally any product whose appeal can be enhanced via an attractive or evocative image, design or pattern. Today art licensing, because of its

timelessness, the ability to target specific niches, year-round profit potential and moderate costs, is a vitally important segment of the worldwide licensing industry. ADVANTAGES OF LICENSING FOR THE LICENSOR 8. Many companies have a portfolio of patents, utility models, proprietary know-how, trademarks, and other IP assets that can be licensed. There are many reasons for a company to license out some or all of its IP rights in some or all of its IP assets in such a portfolio. A company that owns rights in a patent, know-how, or other IP assets, but cannot or does not want to be involved in the manufacturing of products, could benefit from licensing out of such IP assets by relying on the better manufacturing capacity, wider distribution outlets, greater local knowledge and management expertise of another company (the licensee). Licensing out could also help a company to commercialize its IP or expand its current operations into new markets more effectively and with greater ease than on its own. If the licensor's trademark is also licensed for use in the market along with other IP, then the licensee's marketing efforts essentially benefit the licensor's reputation and goodwill. In fact, a trademark license agreement is the heart of any merchandising program, because it delineates the relationship between the owner of a trademark (the licensor) and the producer of the goods or services to which the mark is to be affixed (the licensee). While the licensor is not involved in the manufacturing of the products, he must ensure that the licensee conforms to all conditions concerning maintenance of the quality of the product in relation to which the licensed trademark is used. Similarly, licensors with experience in the field of research and product development may find it more efficient to license out new products rather than take up production themselves. A company that owns IP rights in a technology that it cannot afford to manufacture could consider licensing out the IP rights over that technology for manufacturing and selling products embodying the technology in a specific manner for a specific time and region. Thus, the licensor continues to have the IP rights over the technology and has only given a defined right to the use of that technology. An example of such a business model is a “fables semiconductor” company, where the company uses all its resources essentially for doing research, design and development work.page 3

Licensing out may be used to gain access to new markets, which are otherwise inaccessible. By granting the licensee the right to market and distribute the product, the licensor can penetrate markets it could not otherwise hope to serve. The licensee may agree to make all the adaptations required for entering a foreign market, such as translation of labels and instructions; modification of goods so as to conform with local laws and regulations; and adjustments in marketing. Normally, the licensee will be fully responsible for local manufacture, localization, logistics and distribution. DISADVANTAGES OF LICENSING FOR THE LICENSOR 10. The risks of licensing include: The licensor’s own investment can sometimes generate better profits than operating only or through a license agreement. A licensee can become the licensor’s competitor. The licensee may “cannibalize” sales of the licensor, causing the latter to gain less from royalties than it loses from sales lost to its new competitor. The licensee may be more effective or get to the market faster than the licensor because it may have fewer development costs or may be more efficient. The licensee may suddenly ask for contributions, such as technical assistance, instruction of personnel, additional technical data, etc. All this may simply prove to be too expensive for the licensor. It is important that the license agreement clearly define the rights and responsibilities of the parties, so that any future disagreements can be quickly and efficiently resolved. The licensor depends on the skills, abilities and resources of the licensee as a source of revenue. This dependence is even greater in an exclusive license where an ineffective licensee can mean no royalty revenues to the licensor. Contractual provisions for minimum royalties and other terms can guard against this, but it is still a concern. Specific consideration should be made when licensing out the right to use a trademark. The principle function of a trademark is to distinguish the goods and services of one enterprise from that of another, thereby often identifying the source and making an implied reference to quality and reputation. This function is to some extent prejudiced if the trademark owner licenses another enterprise to use the trademark through a trademark license agreement. Therefore, the trademark owner is well advised, often required by law,, to contractually ensure that the quality standards are maintained so that the consumer is not deceived.

A license agreement can be disadvantageous when the product or technology is not clearly defined or is not complete. In such a case, the licensor may be expected to continue development work at great expense to satisfy the licensee. ADVANTAGES OF LICENSING FOR THE LICENSEE 11. There are various ways in which a license agreement can give the licensor and licensee the possibility of increasing revenues and profits and enlarging market share: There is often a rush to reach the market with new products. A license agreement that gives access to technologies and brands which are already established or readily-available can make it possible for an enterprise to reach it on time. The licensee will benefit from superior technology to produce better quality products, or established trademarks to better market his products.page 5 Small companies may not have the resources to conduct research and development that is necessary to provide new or superior products. A license agreement can give an enterprise access to technical advances, which would otherwise be difficult for it to access. A license can also be necessary for the maintenance and development of a market position that is already well established but is threatened by a new design or new production methods. The costs entailed in order to follow events and trends can become daunting and quick access to a new technology through a license agreement may be the best way to overcome this problem. However, this can increase the product cost and affect the market price in unpredictable ways. There may also be licensing in opportunities, which, when paired with the company’s current technology portfolio, can create new products, services and market opportunities. DISADVANTAGES OF LICENSING FOR THE LICENSEE An IP license may add a layer of expense to a product that is not supported by the market for that product. It is fine to add new technology, but only if it comes at a cost that the market will bear in terms of the price that can be charged. Multiple technologies added to a product can result in a technology rich product that is too expensive to bring to market; Licensing in technology may create a technological dependence on external technology and/or limit the possibilities for growth and expansion (e.g. into new markets) of the licensee according to the provisions stipulated in the licensing agreement; The licensee may have made a financial commitment for a technology that is not

“ready” to be commercially exploited, or that must be modified to meet the licensee’s business need; Benefits of Licensing to Both the Licensor and Licensee Licensor or Brand Owner 

Builds and strengthens the brand image beyond traditional boundaries and builds brand value

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Increases awareness of the brand and its core products amongst consumers who otherwise might not be brand aware.

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Helps to reinforce brand message and position in the marketplace.

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Attracts new customers to the brand name

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Allows consumers to acquire authorized rather than illegal or unauthorized products using the brand name, marks and logo.

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Enhances the importance of the brand name to existing customers

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Allows entry to additional or new trade channels

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Protects trademarks by broadening the trade use of marks

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Generates revenue beyond the normal revenue and profit stream of the brand owner

Licensee or Manufacturer 

Grows market share by associating it products with a brand name and image that transcend the intrinsic retail value of the product manufactured

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Builds competitive advantages over competitors with weaker or no brand awareness

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Generates greater revenue without the start up costs associated with brand development and promotion

Licensees or Manufacturers 

Increases market share of core products through brand acceptance

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Opens new retail channels by channeling channel appropriate brands to their proper niches.

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Gains shelf space at retail by offering multiple valid alternative profit solutions to the retailer

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Increases awareness of product offerings

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Attracts new customers to existing products

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Builds competitive advantage over companies who compete only on price

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Increases sales through a wider assortment of products, giving reasons for additional space

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Lends credibility to their products through brand association

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Generates incremental revenues through the sale of licensed product over and above core non-branded products.