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Licensing duration in foreign markets: A real options perspective

Author

Listed:
  • Marshall S Jiang

    (Faculty of Business, Brock University, St Catharines, Canada)

  • Preet S Aulakh

    (Schulich School of Business, York University, Toronto, Canada)

  • Yigang Pan

    (Schulich School of Business, York University, Toronto, Canada)

Abstract

Licensing can be considered an initial trial of a foreign market before a firm fully commits to it through other investment modes. The length of trial has great importance, because licensing duration represents part of the licensing agreement. When it is too short, the firm may not acquire the necessary experience and knowledge of the foreign market, but if it is too long, the firm misses optimal expansion timing. Arguing that licensing can be considered as a European-style real option with a fixed holding period, we develop and test a model of the determinants of licensing duration in foreign markets. Empirical results based on a sample of firms in various countries show that uncertainty and threat of competitive pre-emption in the foreign market are related to shorter duration of the technology licensing agreements. We also find that irreversibility of the impending investment moderates the relationships between uncertainty and duration. Specifically, market and technology uncertainties in the foreign market induce shorter contracts under low levels of irreversibility. Journal of International Business Studies (2009) 40, 559–577. doi:10.1057/jibs.2008.71

Suggested Citation

  • Marshall S Jiang & Preet S Aulakh & Yigang Pan, 2009. "Licensing duration in foreign markets: A real options perspective," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(4), pages 559-577, May.
    • Handle: RePEc:pal:jintbs:v:40:y:2009:i:4:p:559-577
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    Citations

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    Cited by:

    1. de Andrés, Pablo & de la Fuente, Gabriel & Velasco, Pilar, 2017. "Does it really matter how a firm diversifies? Assets-in-place diversification versus growth options diversification," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 316-339.
    2. Ipsmiller, Edith & Brouthers, Keith D. & Dikova, Desislava, 2021. "Which export channels provide real options to SMEs?," Journal of World Business, Elsevier, vol. 56(6).
    3. Ipsmiller, Edith & Dikova, Desislava & Brouthers, Keith D., 2022. "Digital Internationalization of Traditional Firms: Virtual Presence and Entrepreneurial Orientation," Journal of International Management, Elsevier, vol. 28(4).
    4. Kano, Hirokazu, 2023. "Early internationalization and subsequent geographic expansion: An extended Penrosean perspective," International Business Review, Elsevier, vol. 32(1).
    5. Gorupec Natalia & Tiberius Victor & Brehmer Nataliia & Kraus Sascha, 2022. "Tackling uncertain future scenarios with real options: A review and research framework," The Irish Journal of Management, Sciendo, vol. 41(1), pages 69-88, July.
    6. Sousa, Carlos M.P. & He, Xinming & Lengler, Jorge & Tang, Linhan, 2021. "Foreign market re-entry: A review and future research directions," Journal of International Management, Elsevier, vol. 27(2).
    7. Ancarani, Alessandro & Di Mauro, Carmela & Fratocchi, Luciano & Orzes, Guido & Sartor, Marco, 2015. "Prior to reshoring: A duration analysis of foreign manufacturing ventures," International Journal of Production Economics, Elsevier, vol. 169(C), pages 141-155.
    8. Putzhammer, Moritz & Slangen, Arjen & Puck, Jonas & Lindner, Thomas, 2020. "Multinational firms' pace of expansion within host countries: How high rates of pro-market reform hamper the local exploitation of foreign expansion knowledge," Journal of International Management, Elsevier, vol. 26(1).
    9. Tailan Chi & Jing Li & Lenos G Trigeorgis & Andrianos E Tsekrekos, 2019. "Real options theory in international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 525-553, June.
    10. Meschnig, Annika & Dubiel, Anna, 2023. "From formation to performance outcomes: A review and agenda for licensing research," Journal of Business Research, Elsevier, vol. 167(C).
    11. Preet S Aulakh & Marshall S Jiang & Yigang Pan, 2010. "International technology licensing: Monopoly rents, transaction costs and exclusive rights," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(4), pages 587-605, May.
    12. Ilir Hajdini & Josef Windsperger, 2020. "Real options in franchise contracting: an application of transaction cost and real options theory," European Journal of Law and Economics, Springer, vol. 50(2), pages 313-337, October.
    13. Song, Sangcheol, 2022. "Determining investment size and local embeddedness under host market uncertainty and growth rates," International Business Review, Elsevier, vol. 31(2).
    14. Keith D. Brouthers & Liang Chen & Sali Li & Noman Shaheer, 2022. "Charting new courses to enter foreign markets: Conceptualization, theoretical framework, and research directions on non-traditional entry modes," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(9), pages 2088-2115, December.

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