SMEs are reminded that licensing out a product can be an extremely effective way of capitalising on mature products. As SMEs search for ways to survive the slowdown, it is being sold as a method of creating an easy roll of income for small manufacturers.

According to Julian Nolan, intellectual property expert, this strategy allows businesses to devote attention to news lines or best sellers. Handing over the production of secondary products, which may have provided success in the past but now dilute the potential of the business, to companies in adjacent markets can generate a useful licensed-based income.

Formerly high volume products eventually reach a level of maturity, but discontinuing them can be complicated and problematic. Obsolete components and decreased volumes drain valuable resources, causing a harmful reduction in revenue. However, licensing out the intellectual property of products means small manufacturers can continue product supply without the associated difficulties.

Determining the licensee is dependent upon how well firms can work alongside each other. Nolan explains: “Potential licensees may include existing customers for the product or even one of your competitors.” To determine the market potential, firms are advised to combine citation analysis with theme mapping to ensure they are aware of all potential candidates for out-licensing products.

It is a wide area with many factors to consider. According to Nolan, manufacturers considering licensing need to be clear about the associated supply agreement, and decide if there is more value in retaining the supply to customers, or if purchases will be made directly from the licensee. They should also consider the customer perspective – loyalty, advocacy, access issues should all be studied before proceeding.

Nolan adds: “It is essential to plan the transfer of technology and, if appropriate, equipment between your company and the licensee carefully. This can be a major cause of problems for the unwary.” Companies should identify the full cost of transferring technology as well as component obsolescence issues to determine whether or not licensing out is in fact financially viable. Outsourcing the manufacturing of a particular product line may be a more economical alternative. Nolan advises that other considerations include: duration of the licence; termination of equipment; defining exclusivity of the license agreement, or exploiting the possibility of multiple out-licensing across different locations; brand and trademark associations and the effect out-licensing may have on product identity.

All things considered, small manufacturers can benefit from out-licensing. It is a means of divesting product lines and generating royalty income. But it also provides an exceptional opportunity and stands as a solid practical approach for small firms to invest in newer product development.

Recouping some of the initial investment made in the product’s creation offers small firms a chance to look at the competitive landscape and invest in R&D. Expanding business capabilities will ultimately increase business value.

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