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MB0036 – Strategic Management & Business Policy

Assignment Set- 1

1. Explain the different circumstances under which a suitable growth strategy should be
selected by any company to improve its performance (i.e., intensive, integrative or
diversification growth). You may select an example of your choice to substantiate your
views.
Ans:
Strategies to Improve Sales

There are three alternatives to improve the sales performance of a business unit, to fill the gap
between actual sales and targeted sales:
a) Intensive growth
b) Integrative growth
c) Diversification growth

a) Intensive Growth:
It refers to the process of identifying opportunities to achieve further growth within the
company’s current business. To achieve intensive growth, the management should first
evaluate the available opportunities to improve the performance of its existing current
business.

It may find three options:

• To penetrate into existing markets


• To develop new market
• To develop new products

At times, it may be possible to gain more market share with the current products in their current
market through a market penetration strategy. For instance, Sony introduced TV sets with Trinitron
picture tubes into the market in 1996 priced at a premium of Rs 10,000 and above over the market
through n niche market captures strategy. They gradually lowered the prices to market levels.
However, it also simultaneously launched higher-end products (high-technology products) to
maintain its global image as a technology leader. By lowering the prices of TV with Trinitron
picture tubes, the company could successfully penetrate into the markets to add new customer to
its customer base.

Market Development Strategy is to explore the possibility to find or develop new markets for its
current products (from the northern region to eastern region etc.)Most multinational companies
have been entering Indian markets with this strategy, to develop markets globally. However, care
should be taken to ensure that these new markets are not low density or saturated markets, which
could lead to price pressures.

Product Development Strategy involves consideration of new products of potential interest to its
Current markets (e.g. Gramophone Records to Musical Productions to CDs)- as part of a
Diversification strategy.

b) Integrative Growth:
It refers to the process of identifying opportunities to develop or acquire business that are related
to the company’s current business. More often, the business processes have to be integrated for
linear growth in the profits. The corporate plan may be designed to undertake backward, Forward
or horizontal integration within the industry.
If a company operating in music system takes over the manufacturing business of its plastic
material supplier, it would be able to gain more control over the market or generate more profit.
(Backward Integration)

Alternatively, if the company acquires some of its most profitably operating intermediaries such as
wholesalers or retailers, it is forward integration. If the company legally takes over or acquires the
business of any of its leading competitors, it is called horizontal integration (however, if this
competitor is weak, it might be counter- productive due to dilution of brand image).

c) Diversification Growth:
It refers to the process of identifying opportunities to develop or acquire businesses that are not
related to the Company’s current businesses. This makes sense when such opportunities outsides
the present businesses are identified with attractive returns and that industry has business
strengths to be successful. In most cases, this is planned with new products hat have
technological or marketing synergies with existing businesses to cater to a different group of
customers (Concentric Diversification).

A Printing press might shift over to offset printing with computerized content generation to appeal
to higher-end customers and also and new application areas (Horizontal Diversification)- or even
sell stationery.

Alternatively, the company might choose new businesses that have nothing to do with the current
technology, product or markets (Conglomerate Diversification).

The classic examples for this would be engineering and textile firms setting up software
development center or Call Centers with new services clients.

2. What are the components of a good Business Plan and briefly explain the importance
of each.
Ans:
A good business plan will help attract necessary financing by demonstrating the feasibility of your
venture and the level of thought and professionalism you bring to the task.

The first step in planning a new business venture is to establish goals that you seek to achieve
with the business. You can establish these goals in a number of ways, but an inclusive and
ordered process like an organizational strategic planning session or a comprehensive
neighborhood planning process may be best. The board of directors of your organization should
review and approve the goals, because these goals will influence the direction of the organization
and require the allocation of valuable staff and financial resources.

Your goals will serve as a filter to screen a wide range of possible business opportunities. If you
fail to establish clear goals early in the process, your organization may spend substantial time and
resources pursuing potential business ventures that may be financially viable but do not serve the
mission of your organization in other important ways. A liquor store on the corner may be a clear
moneymaker; however, it may not be the retail to assistant your community desires.

The following are examples of goals you may seek to achieve through the creation of
A new business venture:

Revenue Generation – Your organization may hope to create a business that will generate
sufficient net income or profit to finance other programs, activities or services provided by your
organization.

Employment Creation - A new business venture may create job opportunities for community
residents or the constituency served by your organization.

Neighborhood Development Strategy – A new business venture might serve as an anchor to a


deteriorating neighborhood commercial area, attract additional business to the area and fill a gap
in existing retail services. You may need to find a use for a vacant commercial property that blights
a strategic area of your neighborhood. Or your business might focus on the rehabilitation of
dilapidated single-family homes in the community.

3. You wish to start a new venture to manufacture auto components. Explain different
stages in the process of starting this new business.
Ans:

The Different Phases of New Business

A new business goes through phases in the business cycle (very similar to the stages of human
life).

The first phase- is the formation of an idea. A person-or group of people joins forces, centered
around one exciting invention, process or service.

These crystallizing ideas have a few hallmarks:

They are oriented to fill the needs of a market niche (a small group of select consumer or
customer), or to provide an innovative solution to problem, which bothers many, or to create a
market for a totally new product or services, or to provide a better solution to problem, which is
solved in a less efficient manner.

At this stage, what the entrepreneurs need most is expertise. They need a marketing expert to tell
them if their idea is marketable and viable. They need a financial expert to tell them if they can get
funds in each phase of the business cycle – and wherefrom and also if the product or service can
produce enough income to support the business, pay back debts and yield a profit to the investors.
They needs technical experts to tell them if the idea can or cannot be realized and what it requires
by way of technology transfers, engineering skills, know-how, etc.

Once the idea has been shaped to its final form by the team of entrepreneurs and experts- the
proper legal entity should be formed. A Bewildering array of possibilities arises:

A partnership? A corporation – and if so, a stock or a non- stock company? A research and
development (RND) entity? A foreign company or a local entity? And so on.

This decision is of cardinal importance. It has enormous tax implications and in the near future of
the firm it greatly influences the firm’s ability to raise funds in foreign capital markets. Thus, a
lawyer must be consulted who knows both the local applicable laws and the foreign legislation in
markets, which could be relevant to the firm.

This costs a lot money, one thing that entrepreneurs are in short supply of free legal advice is
likely to be highly appreciated by them. When the firm if properly legally established, registered
with all the relevant authorities and has appointed an accounting firm- it can go on to tackle its
main business: developing new products and services. At this stage the firm should adopt Western
accounting standards and methodology. Accounting system in many countries leave too much
room for creative playing with reserves and with amortization. No one in the West will give the firm
credits or invest in it based on domestic financial statements.
A Whole host of problem faces the new firm immediately upon its formation.

Good entrepreneurs do not necessarily make good managers. Management techniques are not a
genetic heritage.

They must be learnt and assimilated. Today’s modern management includes many elements:
manpower, finances, marketing, investing in the firm’s future through the development of new
products, services or even whole new business lines. That is quite a lot and very few people are
properly trained to do the job successfully.

Sometimes it is better to create a product mix: well-recognized brands, which sell well side-by-side
with innovative products.

This is brief – and by no way comprehensive – taste of what awaits the new business and its
initiator, the entrepreneur. You see that a lot of money and effort are needed even in the first
phases of creating a business.

How can the Government help?

It could set up am “Entrepreneur’s One Stop Shop”

A person wishing to establish a new business will go to a government agency.

In one office, he will find the representative of all the relevant government offices, authorities,
agencies and municipalities.

He will present his case and the business that he wishes to develop. In a matter of few weeks he
will receive all the necessary permits and licenses without having to go to each office separately.

Having obtained the requisite licenses and permits and having registered with all the appropriate
authorities – the entrepreneur will move on the next room in the same building. Here he will
receive a list of all sources of capital available to him both locally and from foreign sources. The
terms and conditions of the financing will be specified for each and every source Example: EBRD
–loans of up to 10 years –interest between 6.5% to 8% grace period of up to 3 years – finances
mainly industry, financial services environmental projects, infrastructure and public services.

The entrepreneur will select the sources of funds most suitable for his needs- and proceed to the
next room.

The next room will contain all the experts necessary to establish the business, get it going – and,
most important, raise funds from both local and international institutions. For a symbolic sum they
will prepare all the documents required by the financing institutions as per their instructions.

But entrepreneurs in many developing countries are still fearful and uninformed.
They are intimidated by the complexity of the task facing them.

The solution is simple: a tutor or a mentor will be attached to each and every entrepreneur. This
tutor will escort the entrepreneur from the first phase to the last.

He will be employed by the “ One Stop Shop” and his role will be to ease life for the novice
businessman. He will transform the person to a businessman.

And then they will wish the entrepreneur: “Bon Voyage” – and may the best ones win.
There is an inherent conflict between owners and managers of companies. The former want, for
instance, to minimize costs – the latter to draw huge salaries as longs as they are in power.

In publicly traded companies, the former with to maximize the value of the stock (short term) the
latter might have a longer term view of things. In the USA, shareholders place emphasis on the
appreciation of the stocks (the result of quarterly and annual profit figures). This leaves little room
for technological innovation, investment in research and development and in infrastructure. The
theory is that workers who also own stocks avoid these cancerous conflicts, which, at times, bring
companies to ruin and, in many cases, dilapidate them financially and technologically. Whether
reality lives up to theory, is an altogether different question.

4.Explain the process of due Diligence and why it is necessary.


Ans:
The Process of Due Diligence

A business which wants of attract foreign investment must present a business plan. But a
business plan is the equivalent of visit card. The introduction is very important- but, once the
foreign investor has expressed interest, a second more serious, more onerous and more tedious
process commences: Due Diligence.

“Due Diligence” is a legal term (borrowed from the securities industry) it means, essentially, to
make sure that all the facts regarding the firm are available and have been independently verified.
In some respects. It is very similar to an audit. All the documents of the firm are assembled and
reviewed, the managements is interviewed and a team of financial experts, lawyers and
accountants descends on the firm to analyze it.

First Rule:
The first must appoint ONE due diligence coordinator. This person interfaces with all outside due
diligence teams. He collects all the materials requested and oversees all the activities which make
up the due diligence process.

The firm must have ONE VOICE. Only one person represents the company, answer questions,
makes presentations and serves as a coordinator when the DD team wish to interview people
connected to the firm.

Second Rule:

Brief your workers. Give them the big picture. Why is the company raising funds, who are the
investors, how will the future of the firm (and their personal future) look if the investor comes in.
Both employees and management must realize that this is a top priority. They must be instructed
not to lie. They must know the DD coordinator and the company’s spokesman in the DD process.

The DD is a process, which is more structured than the preparation of a Business Plan. It is
confined both in time and in subject: Legal, Financial Technical, Marketing, and Controls.

5.Is Corporate Social Responsibility necessary and how does it benefit a company and its
shareholders?
Ans:
Meaning of CSR
CSR is a concept whereby companies integrate social and environmental concern in their
business operations and in their interaction with their stakeholders on a voluntary basis.

The main function of an enterprises is to create value through producing goods and services that
society demands, thereby generating profit for its owners and shareholders as well as welfare for
society, particularly through an ongoing process of job creation. However, new social and market
pressures area gradually leading to a change in the values and in the horizon of business activity.

There is today a growing perception among enterprises that sustainable business success and
shareholder value cannot be achieved society through maximizing short-term profits, but instead
through market-oriented, yet responsible behavior. Companies are aware that they can contribute
to sustainable development by managing their operations is such a way as to enhance economic
growth and increase competitiveness whilst ensuring environmental protection and promoting
social responsibility , including consumer interests.

In this context, an increasing number of firms have embraced a culture of CSR. Despite the wide
spectrum of approaches to CSR, there is large consensus on its main features:

• CSR is behavior businesses over and above legal requirements voluntarily adopted
because businesses deem it to be in their long-term interest;
• CSR is intrinsically linked to the concept of sustainable development: business needs to
integrate the economic, social and environmental impact in their operations.
• CSR is not an optional “add-on” to business core activities – but about the way in which
businesses are managed.

Socially responsible initiatives by entrepreneurs have a long tradition in Europe. What


distinguishes today’s understanding of CSR from the initiatives of the past is the attempt to
manage it strategically and to develop instruments for this. It means a business approach, which
puts stakeholder’s expectations and the principle of continuous and the principle of continuous
improvement and innovation at the heart of business strategies. What constitutes CSR depends
on the particular situation of individual enterprises and on the specific context in which they
operate, be it in Europe or elsewhere. In view of the EU enlargement, it is however important to
enhance common understanding both in Member States and candidate countries.

CSR has found recognition among enterprises, policy- makes and other stakeholder, as an
important element of new and emerging forms of governance, which can help them to respond to
the following fundamental changes.
• Globalization has created new opportunities for enterprises, but it also has increased their
organizational complexity and the increasing extension of business activities abroad has led
to new responsibilities on a global scale, particularly in developing countries.
• Considerations of image and reputation play an increasingly important role in the business
competitive environment, as consumers and NGO’s ask for more information about the
conditions in which products and services are generated and the sustainability impact
thereof, and tend to reward, with their behavior, socially and environmentally responsible
firms.
• Partly as a consequence of this, financial stakeholders ask for the disclosure of information
going beyond traditional financial reporting so as to allow them to better identify the success
and risk factor inherent in company and its responsiveness to pubic opinion.
• As knowledge and innovation become increasingly important for competitiveness,
enterprises have a higher interest in retaining highly skilled and competent personnel.
6.Distinguish between a Financial Investor and a Strategic Investor explaining the role they
play in a Company.
Ans:
Financial Investor vs. Strategic investor

In the not so distant past, there were little differences between financial and strategic investors.
Investor of all colors sought to safeguard their investment by taking over as many management
functions as they could. Additionally, investment were small and shareholders few. A firm
resembled a household and the number of people involved- in ownership and in management-
was correspondingly limited. People invested in industries they acquainted with first hand.

As markets grew, the scales of industrial production (and of services provision) expanded. A
Single investor (or a small group of investors) could no longer accommodate the needs even of a
single firm. As knowledge increased and specialization ensued-it was no longer feasible or
possible to micro-manage a firm one invested in. Actually, separate business of money making
and business management emerged. An investor was expected to excel in obtaining high yields
on his capital – not in industrial management or in marketing. A manager was expected to
manage, not to be capable of personally tacking the various and varying tasks of the business that
he managed.

Thus two classes of investors emerged. One type supplied firms with capital. The other type
supplied them with know-how, technology, management skills, marketing techniques, intellectual,
clientele and a vision, a sense of direction.

In many cases, the strategic investor also provided the necessary funding. But, more and more, a
separation was maintained. Venture capital and risk capital funds, for instance, are purely financial
investors. So are, to a growing extent, investment banks and other financial institutions.

The financial investor represents the past, its money is the result of past- right and wrong-
decisions. Its orientation is short term: an “exit strategy” is sought as soon as feasible. For “exit
strategy” read quick profits. The financial investor is always on the lookout, searching for willing
buyers for his stake. The stock exchange is a popular exit strategy. The financial investor has little
interest in the company’s management. Optimally, his money buys for him not only a good product
and a good market, but also a good management. But his interpretation of the rolls and functions
of “good management.” Are very different to that offered by the strategic investor. The financial
investor is satisfied with a management team, which maximizes value. The price of his shares in
the most important indication of success. This is “bottom line” short termism, which also
characterizes operators in the capital markets. Invested in so many ventures and companies, the
financial investor has no interest, nor the resources to get seriously involved in any one of them.
Micro-management is left to others-but, in many cases, so is macro-management. The financial
investor participates in quarterly or annual general shareholders meetings. This is the extent of its
involvement.

The strategic investor, on the other hand, represents the real long term accumulator of value.
Paradoxically, it is the strategic investor that has the greater influence on the value of the
company’s shares. The quality of management, the rate of the introduction of new products, the
success or failure of marketing strategies, the level of customer satisfaction, the education of the
workforce- all depend on the strategic investor. That there is a strong relationship between the
quality and decisions of the strategic investor and the share price is small wonder. The strategic
investor represents discounted futures in the same manner that share do. Indeed, gradually, the
balances between financial investors and strategic investors is shifting in favour of the latter.
People understand that money is abundant and what is in short supply is good management.
Given the ability; to create a brand, to generate profits, to issue new products and to acquire new
clients – money is abundant.
MB0036 – Strategic Management & Business Policy
Assignment Set- 2

1. What is the purpose of a Business Plan? Explain the features of the component of
the Plan dealing with the Company and its product description.
Ans:
A good business plan will help attract necessary financing by demonstrating the feasibility of your
venture and the level of thought and professionalism you bring to the task.

Company and Product Description

In describing your company be sure to include what type of business you are planning
(homeownership development, wholesale, retail, manufacturing or services) and the legal
structure (corporation or partnership). You should discuss why you are creating this new venture,
referencing the goals you set at the beginning of the business planning process. Also include
description of your non-profit organization, the role it has played in developing this new venture
and the on-going role, if any, it will play in operation. Give the reader a brief overview of the
industry, describing historic and current growth trends.

Whenever possible, provide documentation or references supporting your trend analysis such as
article from business-oriented newspaper and magazines, research journals or other publications.
Include these references in the attachments of your business plan.

Product or services

After describing your company and its industry context, describe the products or services you plan
to provide. Focus on what distinguishes your product or services from the rest of the market.
Discuss what will attract consumers to your product or services. Provide as much detail as
necessary to inform the reader about the particular characteristics of your product that distinguish
it form its competition – many nonprofits, for example, expect to product higher quality housing
than otherwise exists in the area. Mention any distinctive element in the manufacture of the
product, such as being “hand-made by particular people from a specific area.” If you are providing
a service, explain the steps you will take to provide a service that is better than your competition.

Price

Provides a realistic estimate of the price for your product or service, and discuss the rationale
behind that price. An unrealistic price estimate may undermine the credibility of your plan and
raise concerns that your product or services may not be of sufficient quality or that you will not be
able to maintain profitability in the long run. Describe where this price positions you in the
marketplace: at the high end, low end or in the middle of the existing range of prices for a similar
product or services.

In other sections of the plan you will discuss the target marketable for your product or services and
also provide additional details on how the price of your product fits into the overall financial
projections for the enterprises.

Place
Describe the location where you will produce or distribute your product or provide your services.
Discuss the advantages of the location, such as its accessibility, surrounding amenities and other
characteristics that may enhance your business.

Depending on your anticipated customer base accessibility to your location via public
transportation could affect the marketability of your product or services.

Customers

In this section of your business plan, you will describe the customer base or market for your
product or services. In addition to providing a detailed description of your customer base, you will
also need to describe your competition (other local developers or nearby businesses providing a
similar service to your potential customer base). Define the characteristics of your target market in
terms of its demographics, geography, and socioeconomic status.

Provide statistical data to describe the size of your target market. Sources for this information may
include recent data from the Bureau of Statistics state or local census data, or information
gathered by your organization, such as membership lists, neighborhood surveys and group or
individual interviews. Be sure to list the sources for your data, as the will further validate your
market assumptions. Include any relevant information regarding the growth potential for your
target market if your business is expected to rely on growth. Cite any research forecasting
population increases in your target market or other trends and factors that may increase the
demand for your product of services.

Competition

Discuss how people identified in your target market currently meet their need for your product or
services. What other business exist in your area that are similar to your proposed venture? For
example, for a housing business, what are the local markets for purchase and rental? How much
are people currently paying for similar products or services? Briefly describe what differentiates
your proposed venture from these existing businesses and discuss why you are entering this
market.

2. Write short notes on: a) sales projections b) importance of creativity in Business.


Ans:
Sales Projections

Present an estimate of how many people you expect will purchase your product or service. Your
estimate should be based on the size of your market, the characteristics of your customers and
the share of the market you will gain over your competition. Project how many units you will sell at
a specified price over several years. The initial year should be broken down in monthly or quarterly
increments. Account for initial presentation and market penetration of your product and any
seasonal variations in sales, if appropriate.

Creativity

Everyone in business in creative.

Some of most creative people are in manufacturing.

They actually CREATE product that change the world.


Some of the least creative people perhaps are in advertising.
They spend most of their creative energy telling manufacturers that they…. Aren’t creative.
Best Creative Exercise Ever

Write down your ideas.


We have a ton every day.
But most of the, you can’t remember them by the day’s end.
Don’t let spelling and grammar issues or relentless self-editing stop you.
Get your ideas on paper(Let someone else edit it.)

Go retro: Carry a notebook, pen and calendar into your meeting.


Look up at people

Story First, Technology Last.


Don’t invest in a presentation class called “How to Use PowerPoint”… until you’ve taken a class
called “How to Tell Stories and connect with Your Audience”.

Simple Creative Exercise.


Simplify everything. Your life, your home, your office, your desk, your processes, vision, policy,
procedures. Everything.

Fixing Problems is Creative.


Your job is to fix problems, not to complain

Brainstorming
Don’t tell people that their ideas are bad, especially if you don’t have a better one.

It’s only your life’s work.


Never say, “It’s not my job to be creative.”

3. What factors are to be taken into account in a crisis communications strategy?


Ans:
Communications

Effective communication is one of the most important ingredients in crisis management.

Identify the Audiences

Internal and external audiences should be identified in order to convey crisis and organizational
response information. In order to provide the best communications and suitable messages for
various groups, it is often appropriate to segment the audiences. In this way, messages tailored
specifically for a group can be released.

Internal External

• Employees and their families


• Customers/Credit, present and potential
• Business Owners/Partner
• Contractors/Vendors
• Board of Directors
• Media
• Onsite Contractors/Vendors
• Government and Regulatory Agencies
• Local law enforcement
• Emergency responders
• Investors/Shareholders
• Surrounding communities

Communicating with Audiences

The following items should be taken into account in the crisis communications strategy:
• Communication should be timely and honest.
• To the extent possible, and audience should hear news from the organization first.
• Communication should provide objective and subjective assessments.
• All employees should be informed at approximately the same time.
• Give bad news all at once – do not sugarcoat it.
• Provide opportunity for audiences to as question, if possible.
• Provide regular updates and let audiences know when the next update will be issued.
• Treat audience, as you would like to be treated.
• Communicate in a manner appropriate to circumstances:

- Face-to-face meetings (individual and group)


- News conferences
- Voice mail/email
- Company intranet and internet sites
- Toll-free hotline
- Special newsletter
- Announcement using local/national media

Preplanning for communications is critical. Drafts of message templates, scripts, and statements
can be crafted in advance for threats identified in The Risk Assessment.

Procedures to ensure that communication can be distributed at short notice should also be
established, particularly when using resources such as intranet and internet sites and toll-free
hotlines.

Official Spokesperson

The organization should designate a single primary spokesperson, with back-ups identified, who
will manage/disseminate crisis communications to the media and others. This individual should be
trained in media relations prior to crisis. All information should be funneled through a single source
to assure that the messages being delivered are consistent.

It should be stressed that personnel should be informed quickly regarding where to refer calls from
the media and that only authorized company spokespeople are authorized to speak to the media.
In some situations, an appropriately trained site spokesperson may also be necessary.

4. What elements should be included in a Marketing Plan under Due Diligence while
seeking investment in for your Company?
Ans:
The Marketing Plan

• A brief history of the business (to show it track performance and growth)
• Points regarding the political, legal (licenses) and competitive environment.
• A vision of the business in the future
• Product and services and their uses
• Comparison of the firm’s products and services to those of the competitors
• Development of new products or services.
• A general overview of the market and market segmentation
• Is the market rising or falling (the trend: ast and future)
• What customer needs do the products/ services satisfy
• Which markets segments do we concentrate on and why
• What factors are important in the customer’s decision to buy (or not to buy)
• A list of the direct competitors and short description of each
• The strengths and weaknesses of the competitors relative to the firm
• Missing information regarding the markets, the clients and the competitors.
• Planned market research
• A sales forecast by product group
• The pricing strategy (how a pricing decided)
• Promotion of the sales of the products (including a description of the sales force, sales-
related incentives, sales targets, training of the sales personnel, special offers, dealership,
telemarketing and sales support). Attach a flow chart of the purchasing process from the
moment that the client is approached by the sales force until he buys the product.
• Marketing and advertising campaigns (including cost estimates) – broken by market and by
media
• Distribution of the products
• A flow chart describing the receipt of orders, invoicing, shipping.
• Customer after-sales services (hotline, support, maintenance, complaints, upgrades, etc.)
• Customer loyalty (example: chum rate and how is it monitored and controlled.)

5. Distinguish between Joint Ventures and Licensing, explaining the relative


advantages and disadvantages of each.
Ans:
A license is a grant of permission made by the patent owner to another to exercise any specified
rights as agreed. Licensing is a good way for and owner to benefit from their work as the retain
ownership of the patented invention while granting permission to others to use it and gaining
benefits, such as financial loyalties, from that use. However, it normally requires the owner of the
invention to invest time the resources in monitoring the licensed use, and in maintaining and
enforcing the underlying IP right.

The patent right normally includes the right to exclude others from making using, selling or
importing the patented product, and similar rights concerning patented processes. The license can
therefore cover the use of the patented invention in many different ways.

For instance, licenses can be exclusive or non-exclusive. If a patent owner grants a non-exclusive
license to Company A to make and sell their patented invention in Malaysia, the patent owner
would still be able to also grant Company B another non-exclusive for the same rights and the
same time period in Malaysia. In contrast, if a patent owner granted an exclusive license to
Company A to make and sell the invention in Malaysia, they would not be able to give a license to
anyone else in Malaysia while the license with Company A remained in force.
Licenses are normally confined to a particular geographical area – typically the jurisdiction in
which particular IP rights have effect. You can grant different exclusive licenses for different
territories at the same time. For example, a patent owner can grant an exclusive license to make
and sell their patented invention in Malaysia for the term of the patent, and grant a separate
exclusive license to manufacture and sell their patented invention in India for the term of patent.

Separate licenses can be granted for different ways of using the same technology. For example, if
an investor creates a new form of pharmaceutical delivery, she could grant an exclusive license to
one company to use the technology for an arthritis drug, a separate exclusive license to another
company to use it is for relief of cold symptoms, and a further exclusive license to a third company
to use it for veterinary pharmaceuticals.

A license is merely the grant of permission to undertake some of the actions covered by
intellectual property rights, and the patent holder retains ownership and control of the basic patent.

Licenses are often limited to specific rights, territories and time periods. For example, a patent
owner could exclusively license only their importation right to a company for the territory of
Indonesia for 12 months. If an investor owns patents on the same invention in five different
countries, they could assign (or sell) these patents to five different owners in each of those
countries. Portions of a patent right can also be assigned – so that in order to finance your
invention, you might choose to sell a half-share to a commercial partner.

If you assign your rights, you normally lose any possibility of further licensing or commercially
exploiting your intellectual property rights. Therefore, the amount you charge for an assignment is
usually considerable higher than the royalty fee you would charge for a patent license. When
assigning the rights, you might seek to negotiate a license from the new owner to ensure that you
can continue to use your invention in the event that you come up with an improvement on your
original invention and this falls within the scope of the assigned patent. Equally, the new owner of
the assigned patent might want to get access to your subsequent improvements on the invention.

Joint Venture Agreements

Rather than simply exploit your IP rights by licensing or assignment, you might choose to set up a
new legal mechanism to exploit your technology. Typically this can be a partnership expressed
though a joint venture agreement or a new corporation, such as a start-up or spin-off company.

These options require much more work on your part than licensing or assigning your intellectual
property rights. This could be desirable choice in cases where:

- You want to keep your institute’s research activities separate from the development
and commercialization of technology, especially when your institute has a public
interest focus or an educational role; or
- You need to attract financial support from those prepared to take a risk with an
unproven technology (‘angel investors’ OR ‘venture capitalists’), and they will only
take on a long-term risk if they can get a share of future profits of the technology.

In working out the right vehicle for your technology, you will normally need specific legal advice
from a commercial lawyer, preferably one with experience in technology and commercialization in
your jurisdiction from one country to another, and discussion in only intended to give a general
flavor of the various options.

A joint venture agreement involves a formal, legally binding commitment between two or more
partners to work together on shared enterprises. It is normally created for a specific purpose (for
example, to commercialise a specific new technology) and for a limited duration. For instance you
might sign a partnership agreement with a manufacturing company to develop and market a
product based on your invention. Before entering into a joint venture agreement, you need to
check out possible commercial partners and make sure that the objectives of your potential
commercial partners are make sure that the objectives. In the joint venture agreement, the
partners typically agree to share the benefits, as well as the risks and liabilities, in a specified way.

But this kind of partnership isn’t normally able in itself to enter legal commitments, or own IP in its
own right, so that the partners remain directly legally responsible for any losses or other liabilities
that the partnership’s operations create. In other words, a partnership, which is not a corporation,
a company or a specific institution, doesn’t really separately exist as a legal entity.

6. You wish to commercialize your invention. What factors would you weigh in
choosing an appropriate course?
Ans:
Commercialization Mechanisms

In summary, a technology licensing agreement will normally:

• Name the intellectual property rights being licensed.


• Make it clear who retains ownership of the intellectual property rights.
• State how the royalty rates will be worked out.
• Set out when royalties will be paid, including milestone payments.
• Set our which territory the license applies to.
• Set out whether the license is exclusive or no exclusive.
• Set out whether the licensee can license the intellectual property rights to others.
• State who will pay the costs of maintaining the patent rights.
• Set out arrangements for dealing with improvements and new applications of the new
technology.
• Set out how confidentiality issues will be dealt with and the rights of the investor to publish
their research.
• Provide for an insurance, release and indemnity clauses.
• Provide for dispute resolutions and termination.

Choosing a potential licensee can be very important, as you are relying on this commercial partner
to deliver the benefits of your technology – no only the commercial benefits, but the benefits to
society that might come from the full dissemination and widest possible use of your technology.

The choice should not just be based on wiliness to pay a higher royalty. A partner who has a
convincing business plan and establishes a good working relationship with you is likely to be more
valuable. If you are selecting a licensee, you may need to consider a host of factors, including:

• Does the company have experience and proven success in developing new technologies
and bringing products to market?
• What kind of R&D and business plan does the company have? Are there realistic plans for
developing and distributing the product based on your technology? Do these plans have
well - defined milestones that could be built into a license agreement?
• Do you want to favour development of technology in your own country? In the company
willing and able to invest locally in facilities for exploiting the technology?
• Are the resources, expertise and reputation of a large, established company needed, or are
flexibility and lower costs of a smaller, Start-up Company more appropriate for the
technology?
• Are you planning to export your technology or otherwise develop overseas markets? Is your
potential established overseas, or have experience in foreign markets?
• Is your commercial partner likely to be able to take up new applications and improvements
on the technology that your research is working towards? Are they able to apply the
technology in all the potential areas of use?

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