HOME

TheInfoList



OR:

Licensed production is the production under
license A license (or licence) is an official permission or permit to do, use, or own something (as well as the document of that permission or permit). A license is granted by a party (licensor) to another party (licensee) as an element of an agreeme ...
of technology developed elsewhere. The licensee provides the licensor of a specific product with legal production rights, technical information, process technology, and any other proprietary components that cannot be sourced by the licensor. This is an especially prominent commercial practice in developing nations, which often approach licensed production as a starting point for indigenous industrial development. While licensed production in developing nations provides stimulus to the production and technical capabilities of local industry, in many cases it remains at least partly dependent on foreign support.


History

The four most common applications of licensed production have historically been automotive engines and parts, weaponry, aircraft, and pharmaceuticals. During
World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was List of wars and anthropogenic disasters by death toll, one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, ...
, it was more common for licensing agreements to take place between companies in the same country; for example,
Opel Opel Automobile GmbH (), usually shortened to Opel, is a German automobile manufacturer which has been a subsidiary of Stellantis since 16 January 2021. It was owned by the American automaker General Motors from 1929 until 2017 and the PSA Grou ...
was granted a license to produce BMW-designed aircraft engines for the German war effort. During the 1920s, European economists began advocating licensed production of foreign goods as the cure for "industrial particularism"—it allowed countries to bypass the costly
research and development Research and development (R&D or R+D), known in Europe as research and technological development (RTD), is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existi ...
stage of acquiring products with which their own industries were unfamiliar, and refocus on the domestic manufacture of preexisting overseas designs. This allowed for a much higher rate of production, and was considerably cheaper than national sourcing and off-the-shelf acquisition. European automobile manufacturers were the first to adopt this practice, producing a number of specialized American components for their passenger cars under license. The United States not only supplied European factories with the necessary blueprints and licenses, but also sourced American-made tooling equipment accordingly, which allowed the automobile companies to optimize their production lines. By the 1960s it was not uncommon for an entire specialized industry—such as the manufacture of rotary aircraft in the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
—to be dependent wholly on foreign-licensed components. A number of countries began making improvements to foreign products manufactured under license, and were even able to re-export them successfully. This trend resulted in some technology suppliers imposing additional conditions on the licensee. The United States began inserting ''pro forma'' statements into licensing agreements known as ''"side letters"'', which required the free sharing of any improvements made to American technology. Other attempts were also made to control the destination of licensed products, particularly with regards to the arms industry. For instance,
France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
stipulated that military vehicles manufactured in
South Africa South Africa, officially the Republic of South Africa (RSA), is the southernmost country in Africa. It is bounded to the south by of coastline that stretch along the South Atlantic and Indian Oceans; to the north by the neighbouring coun ...
under a French license were not to be exported to other foreign nations without its express approval. Yet another form of common licensing restriction related solely to the licensing activity, regulating whether the specified product was fully produced or partly assembled, and whether entire products or their individual components were manufactured. The governments of Germany and Switzerland imposed similar restrictions on military vehicles manufactured in
Argentina Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the List of South American countries by area, second-largest ...
and
Chile Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the eas ...
under license. In some cases, the original technology supplier did not need to manufacture the product itself—it merely patented a specific design, then sold the actual production rights to multiple clients. This resulted in different companies separately manufacturing identical products licensed from the same licensee. For many licensee companies, licensed production by other firms provides a continuous outlet for their proprietary technology, increasing their return on investment and prolonging the economic life of the product. Developing nations began accounting for a significant percentage of licensed production during the late twentieth century. Governments of developing nations often sought to encourage rapid industrialization, reduce dependence on foreign imports, and combat high levels of unemployment by creating and retaining local jobs. However, in many of these nations there was not a strong tradition of technology-based industrial development, and local firms were seldom active participants in creating indigenous technology through research and development. Since their research capacity was typically too limited to meet their goals, adopting licensing agreements for foreign technology was an especially attractive option. Manufacturing licensed products generated employment and empowered local industry while reducing dependence on imports. It also avoided the risks inherent in the development of new products by taking advantage of the proven reputation of products which had already achieved success in foreign markets. The economic life of many products, namely in the automotive and defense sectors, have been prolonged by overseas licensed production long after they were considered obsolete in their countries of origin. Developing nations such as
Pakistan Pakistan ( ur, ), officially the Islamic Republic of Pakistan ( ur, , label=none), is a country in South Asia. It is the world's List of countries and dependencies by population, fifth-most populous country, with a population of almost 24 ...
and
Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...
which built important segments of their industry on licensed production have now themselves become licensors of technology and products to less developed states.


Theoretical basis

Licensed production is defined as an overseas production arrangement, usually as a direct result of inter-state trade agreements, that permits a foreign government or entity to acquire the technical information to manufacture all or part of an equipment or component patented in the exporting country. According to the
World Intellectual Property Organization The World Intellectual Property Organization (WIPO; french: link=no, Organisation mondiale de la propriété intellectuelle (OMPI)) is one of the 15 specialized agencies of the United Nations (UN). Pursuant to the 1967 Convention Establishi ...
(WIPO), it must constitute a partnership between an
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...
owner and a licensee who is authorized to use such rights under certain conditions. The licensee is manufacturing a product for which it has been granted production rights under specific conditions, while the licensor retains ownership of the intellectual property thereof. In some cases the licensor will supply the necessary technical data, prototypes, and/or machine tools to the licensee. While licensed production is often dependent on the appropriate technology transfers, it does not necessarily entail ownership and management of the overseas production by the technology supplier. However, the licensor does retain the right to continue to use the licensed property, and to attribute further licenses to third parties. Occasionally, licensees may themselves sub-license a third party with or without the agreement of the intellectual property owner. Licensing agreements determine the form and scope of compensation to the intellectual property owner, which usually takes the form of a flat ''licensing fee'' or a running royalty payment derived from a share of the licensee's revenue. The licenses can be terminated by the licensor, or may expire after a set date; however, the technology and knowledge, once transferred, cannot be rescinded, so even if the licensing agreement expires they remain in the licensee's possession. Two related commercial practices are foreign subcontractor production and the proliferation of
knock-down kits A knock-down kit (also knockdown kit, knocked-down kit, or simply knockdown or KD) is a collection of parts required to assemble a product. The parts are typically manufactured in one country or region, then exported to another country or region ...
. Foreign subcontracting occurs when a product's original manufacturer contracts the production of its individual parts and components to a second party overseas. Such arrangements are not considered examples of licensed production because they do not involve the explicit licensing of technological information. Knock-down kits are regarded as a prerequisite to licensed production; they consist of products assembled locally from imported, pre-manufactured parts.


Quality control and unlicensed production

Some licensors find it difficult to regulate the quality of their products manufactured under license. It is not always made clear to consumers where exactly a particular good originated, and a poor quality licensed product may damage the reputation of the original licensor. However, this is not considered a form of consumer fraud unless the product is unlicensed or
counterfeit To counterfeit means to imitate something authentic, with the intent to steal, destroy, or replace the original, for use in illegal transactions, or otherwise to deceive individuals into believing that the fake is of equal or greater value tha ...
. Unlicensed production is the utilization of foreign manufacturing technology without a license, achieved through
industrial espionage Industrial espionage, economic espionage, corporate spying, or corporate espionage is a form of espionage conducted for commercial purposes instead of purely national security. While political espionage is conducted or orchestrated by governme ...
or
reverse engineering Reverse engineering (also known as backwards engineering or back engineering) is a process or method through which one attempts to understand through deductive reasoning how a previously made device, process, system, or piece of software accompli ...
. Products in high demand on the international market can be reproduced, based on the same or similar design, and branded in ways to make them indistinguishable from the original. When copied and reproduced without a license, certain items are sometimes recopied in a similar manner by a third party. The manufacturers responsible may also grant legitimately registered sub-licenses for their unlicensed products, profiting at the expense of the real intellectual property owner. The quality of unlicensed goods varies greatly; the
United Nations Office on Drugs and Crime The United Nations Office on Drugs and Crime (UNODC; French: ''Office des Nations unies contre la drogue et le crime'') is a United Nations office that was established in 1997 as the Office for Drug Control and Crime Prevention by combining the ...
has noted that while licensing companies often provide quality control measures, and there is some incentive for licensees to comply or risk legal action and the ensuing damage to their own profit, manufacturers who engage in unlicensed production are under no such obligations. Another method of circumventing the need for a license involves a manufacturer making slight modifications in the design or function of an existing product, before reproducing it. The manufacturer could then argue that the resulting product is not an unlicensed copy, but a new product not subject to license. Also need to be noted that once the terms of the patent for the particular technology or invention has expired, any manufacturer could legally reverse-engineer and reproduce said technology without needing to negotiate license agreements with former patent holder. However, even after patent terms have lapsed some manufacturers do opt for licensed production, since such agreements also confer transfer of full manufacturing plans and expertise which may prove to be cheaper than acquiring those via reverse engineering.


Examples

Industrial products which have been built under license include: *The Belgian
FN FAL The FAL (a French acronym for (English: "Light Automatic Rifle")), is a battle rifle designed in Belgium by Dieudonné Saive and manufactured by FN Herstal (simply known as FN). During the Cold War the FAL was adopted by many countries of th ...
battle rifle A battle rifle is a service rifle chambered to fire a fully powered cartridge. The term "battle rifle" is a retronym created largely out of a need to better differentiate the intermediate-powered assault rifles (e.g. the StG-44, AK-47, M16, ...
by
FN Herstal Fabrique Nationale Herstal (), trading as FN Herstal and often referred to as Fabrique Nationale or simply FN, is a leading firearms manufacturer based in Herstal, Belgium. It is currently the largest exporter of military small arms in Europe. ...
, produced under license in fifteen countries. *The
German German(s) may refer to: * Germany (of or related to) **Germania (historical use) * Germans, citizens of Germany, people of German ancestry, or native speakers of the German language ** For citizens of Germany, see also German nationality law **Ge ...
G3 battle rifle by Heckler & Koch, produced under license in eighteen countries. *The Italian Aermacchi MB-326 trainer aircraft, produced under license in
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
and South Africa. *The British Folland Gnat trainer aircraft, produced under license in
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
. *The American
Northrop F-5 The Northrop F-5 is a family of supersonic light fighter aircraft initially designed as a privately funded project in the late 1950s by Northrop Corporation. There are two main models, the original F-5A and F-5B Freedom Fighter variants and t ...
light fighter A light fighter or lightweight fighter is a fighter aircraft towards the low end of the practical range of weight, cost, and complexity over which fighters are fielded. The light or lightweight fighter retains carefully selected competitive feat ...
aircraft, produced under license in
Taiwan Taiwan, officially the Republic of China (ROC), is a country in East Asia, at the junction of the East and South China Seas in the northwestern Pacific Ocean, with the People's Republic of China (PRC) to the northwest, Japan to the no ...
. *The Soviet
Mikoyan-Gurevich MiG-21 The Mikoyan-Gurevich MiG-21 (russian: Микоян и Гуревич МиГ-21; NATO reporting name: Fishbed) is a supersonic jet fighter and interceptor aircraft, designed by the Mikoyan-Gurevich Design Bureau in the Soviet Union. Its nickn ...
multirole fighter aircraft, produced under license in India. *The American General Dynamics F-16 multirole fighter aircraft, produced under license in
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
. *The British
Canberra Canberra ( ) is the capital city of Australia. Founded following the federation of the colonies of Australia as the seat of government for the new nation, it is Australia's largest inland city and the eighth-largest city overall. The ci ...
bomber A bomber is a military combat aircraft designed to attack ground and naval targets by dropping air-to-ground weaponry (such as bombs), launching torpedoes, or deploying air-launched cruise missiles. The first use of bombs dropped from an air ...
aircraft, produced under license in the United States as the
Martin B-57 Canberra The Martin B-57 Canberra is an American-built, twin-engined tactical bomber and reconnaissance aircraft that entered service with the United States Air Force (USAF) in 1953. The B-57 is a license-built version of the British English Electric C ...
. *The French
Aérospatiale Alouette III The Aérospatiale Alouette III (, ''Lark''; company designations SA 316 and SA 319) is a single-engine, light utility helicopter developed by French aircraft company Sud Aviation. During its production life, it proved to be a relatively popular r ...
helicopter, produced under license in
Romania Romania ( ; ro, România ) is a country located at the crossroads of Central Europe, Central, Eastern Europe, Eastern, and Southeast Europe, Southeastern Europe. It borders Bulgaria to the south, Ukraine to the north, Hungary to the west, S ...
,
Switzerland ). Swiss law does not designate a ''capital'' as such, but the federal parliament and government are installed in Bern, while other federal institutions, such as the federal courts, are in other cities (Bellinzona, Lausanne, Luzern, Neuchâtel ...
, and India. *The American
Bell UH-1 Iroquois The Bell UH-1 Iroquois (nicknamed "Huey") is a utility military helicopter designed and produced by the American aerospace company Bell Helicopter. It is the first member of the prolific Huey family, as well as the first turbine-powered helico ...
helicopter, produced under license in Germany, Japan, and Italy. *The French Panhard AML armored car, produced under license in South Africa as the
Eland Mk7 The Eland is an air portable light armoured car based on the Panhard AML. Designed and built for long-range reconnaissance, it mounts either a 60mm (2.4 in) breech-loading mortar or a Denel 90mm (3.5 in) gun on a very compact chass ...
. *The French CM60A1 mortar, produced under license in South Africa. *The Italian Fiat 125 passenger car, produced under license in
Poland Poland, officially the Republic of Poland, is a country in Central Europe. It is divided into 16 administrative provinces called voivodeships, covering an area of . Poland has a population of over 38 million and is the fifth-most populou ...
as the Polski Fiat 125p.{{cite book, last=Mieczkowski, first=Bogdan, title=East European Transport Regions and Modes: Systems and Modes, date=1980, pages=322–342, publisher=Martinus Nijhoff Publishers, location=The Hague, isbn=978-94-009-8901-6 *The
Soviet The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, ...
GAZ-M20 Pobeda sedan, produced under license in Poland as the
FSO Warszawa :''Sections of this article are translated from Polish Wikipedia''. FSO Warszawa (from Polish: '' Warsaw'') was an automobile manufactured in FSO factory in Warsaw, Poland between 1951–1973, based on GAZ-M20 Pobeda. The Warszawa was the fi ...
.


See also

* Import substitution * Local purchasing *
Mass production Mass production, also known as flow production or continuous production, is the production of substantial amounts of standardized products in a constant flow, including and especially on assembly lines. Together with job production and ba ...
*
Badge engineering In the automotive industry, rebadging is a form of market segmentation used by automobile manufacturers around the world. To allow for product differentiation without designing or engineering a new model or brand (at high cost or risk), a ma ...
* Upscaling


References

Production and manufacturing Licensing Development economics International trade Industrial policy Intellectual property law