In a licensing arrangement, firms choose foreign organizations to manufacture their products in another country in return for a fee plus royalties.

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A licensing arrangement is a contract under which one firm allows another to use its brand name, operating procedures, or proprietary technology. Firms give foreign individuals or companies exclusive rights (called licensing agreements)to manufacture or market their products in that market. In return, the exporter receives a fee plus ongoing payments (royalties)that are calculated as a percentage of the license holder's sales.

In a Licensing Arrangement, Firms Choose Foreign Organizations to Manufacture