By: George Williams, Managing Director, LMCA Asia
Corporate brand licensing has skyrocketed in Asia with a growing number of Western brands realizing remarkable success in the region. But while there have been many highly acclaimed licensing deals, there have also been numerous spectacular failures. As a brand licensor, it’s vital to understand the key differences in licensing practices in Asia verses the West, and adapt your licensing strategy accordingly.
Many Western brand licensors simply “copy and paste” their licensing programs from the U.S. and Europe into Asia. This approach is risky, as considerable damage can be done to the brand and you may find yourself helpless in controlling the fallout. There are many recognizable differences in how licensing is being executed in Asia verses the West, as well as some “not so obvious” differences that can make or break a licensing deal. As a brand licensor, you need to be aware of these differences before making your first leap, or if you’ve already started, you may want to review your licensing programs and take actions for improvement.
Need for tighter trademark registrations in Asia
Once you have specific countries in mind where you plan to launch licensing programs, review the trademark registration status in each of these countries first. Remember, Asia is not a homogenous market, and there are enormous differences in languages, legal and business practices that you need to be aware of.
For example, in addition to registering the trademark in its original language, it is advisable to register your trademark in the distinctive Chinese language even if the Chinese mark does not appear on your products. This is critical because the Chinese consumers remember your brand in its Chinese language. If a foreign mark does not have a Chinese name when it enters the Chinese market, the licensees, retailers or the distributors will give it a Chinese name for practical commercialization in the market. Tragically, unknown to you, the Chinese marks can be registered by third parties! After this occurs, it is very hard for you, the genuine owner, to take back the trademark rights.
Apart from the protection of your trademarks, you should also use copyrights to protect your catalogues, brochures and website content, especially if you intend to pursue a bundled license. Copyrights are granted automatically, but it is advisable to register them in your key markets; especially in India and China where voluntary registration is allowed. Copyright registration will be accepted as evidence of copyright ownership in the event that you wish to pursue a copyright infringement and greatly reduces evidence preparation needs, thereby saving your company extra costs for a long and complicated process.
Different level of brand awareness in Asia vs. the West and its implications
Having reasonably strong brand awareness in Asia is a good starting point. However, many Western consumer brands have much lower brand awareness in Asia, as compared to their home countries. These differences in recognition have significant implications for the brand’s licensing potential in Asia. For those who don’t have much brand awareness in Asia, the licensing door is not necessarily shut, but you need to add tangible value to the licensees.
Here are some commonly asked questions by Asian licensees: “In addition to the brand name, what else can you offer? Can you license the product design? How would you support us in marketing your brand in Asia? How much will you invest in advertising? Can we tap into your supplier base? Can we enjoy the same discount rate that you have with your suppliers?”
These questions may not be common in the West but you most likely have most answers within your organization. It’s vital to be able to explain your company’s advantages and resources in an effective and translatable way.
Differences in licensing strategies in Asia vs. the West
There are some common characteristics about Asian licensees that necessitate the adjustment in your licensing strategies in Asia. One example is the mentality of “a bird in the hand is worth two in the bush”. In rapidly growing emerging markets across Asia, opportunities come and go quickly. Coupled with many uncertainties in the economy, many companies operate on a relatively short-term basis. With a 3-year or 5-year brand licensing agreement in-hand, their first priority is to make money before the license expires, on the assumption that the license won’t be renewed (for whatever reason). Such a mentality strongly discourages licensees from investing upfront in the brand, and it also contributes to the challenges in licensee compliance in Asia.
This mentality also conflicts with Western brand owners who care more about the long-term growth of the brand. For lesser known brands that require a more substantial upfront investment in Asia, it is much tougher to find good licensee partners who not only have strong capabilities, but are equally committed to brand investment, and remain patient long enough to experience brand growth in Asia.
Differences in Evaluation Criteria of Licensee Partners
Developing a winning strategy is no guarantee of a licensing program’s success. Working with the right licensees is equally important. Given the significant differences in business practices in Asia as compared to the West, brand owners need to develop some understanding of the local market and evaluate potential licensee partners against a set of standards that may differ greatly from those used at home.
Differences in the Royalty Rates
First, when it comes to royalties, there is no such thing as a “standard rate”. Even for the same brand, the royalty rate can vary greatly from market to market in Asia. Second, despite having lower brand recognition in Asia, the royalty rate may not be necessarily lower than what you typically receive in your home country. Because Asian consumers usually have a preference for Western brands, they are more willing to pay large brand premiums compared to consumers in the West. So how should you determine the royalty rate?
In general, the”¼ rule” can be useful in determining the appropriate royalty rate. What is the”¼ rule”? In short, the royalty rate calculation can be derived as ¼ of the extra value generated by the brand, i.e. the brand premium in a specific market. The advantage of using this approach is it can be applied in various industries and countries. Of course, this approach works only when both parties agree upon the positioning of the licensed brand in the local market, and the benchmark with which the licensed brand should be compared in that specific market.
Look before you leap
The differences between Asian and Western licensing discussed in this article are by no means exhaustive. Other differences which have implications in creating strong licensing programs include cultural and management styles; licensors and licensees’ responsibilities in brand building; and licensee compliance, etc.
With steadily growing economies and more affluent consumers with appetites for Western brands, Asia will become an important and lucrative market for Western brand licensing programs. Venturing into new territories isn’t without risk; the biggest risk is the temptation to simply create a “cookie cutter” of your Western licensing program in Asia.
There are three principles that may guide you in your next venture. First, be aware of the key differences in conducting brand licensing in Asia. Second, avoid making decisions without leaving your headquarters … you need to immerse yourself in the local market or seek professional assistance from a licensing agency that has a local team in Asia; and third, be prepared to localize your licensing program for Asia to maximize its financial return and its longevity.
Since 2005, LMCA’s Asian headquarters in Shanghai, China has provided an invaluable presence for brands looking to expand their reach, grow their brands and better navigate the business and cultural nuances that are so critical to developing a successful, long-term licensing program in China and the greater APAC region.
To learn more about how to successfully bring your brand into Asia, contact us today.
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