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and ongoing fees, usually calculated as some percentage of sales. In
addition, the franchiser may allow an independent firm to operate its own

franchised outlets (McDonald and Burton, 2002, p. 230). Franchising can
be described as a contractual form of commercial co-operation between
independent companies, where the franchisee pays for the right to use the

franchiser’s brand name and, possibly, other distinctive means such as
the layout and design of the shop (Brickley and Dark,1987). Popular

examples of companies using franchising as a mode of foreign entry are
Subway, McDonald’s, Burger King, and Pizza Hut.

6.5.3 Licensing agreement (co-operation strategy)

This is one of the ways in which a company can establish local investment

in foreign markets without capital investment. It is an agreement wherein
the licensor gives something of value to the licensee in exchange for
certain performance and payments from the licensee. Hollensen (2001, p.

265) points out that the licensor may give one or more of the following to
the licensee:

• A patent covering a product or process

• Manufacturing know-how not subject to a patent

• Technical advice and assistance, occasionally including the supply of
components

• Materials or plant essential to the manufacturing process

• Marketing advice and assistance

• The use of a trade mark or name.

Licensing agreements are long-term contracts that transfer the right to use

specific know-how. Generally, the licensee pays the licensor a royalty
based on the quantity or the sales of the output, which embodies the know-

how transferred. Sometimes, however, patents are exchanged for other
patents, making actual payment unnecessary. This type of agreement is
called a cross-licensing agreement. The knowledge transferred may

concern one or more products, the production process, or the research
and development activities representing current and/or future technologies