Assignment: MBA – SEM IV

Subject Code: MB0036

Strategic Management and Business Policy

Set II
Question 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.

Answer: Purpose of a Business Plan: A good business plan will help attract
necessary financing by demonstrating the feasibility of your venture and the
level of thought and professionalism that 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.

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
businesses 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.

Establish Goals - Once you have identified goals for a new business venture,
the next step in the business planning process is to identify and select the right
business. Many organizations may find themselves starting at this point in the
process. Business opportunities may have been dropped at your doorstep.
Perhaps an entrepreneurial member of the board of directors or a community
resident has approached your organization with an idea for a new business, or a
neighborhood business has closed or moved out of the area, taking jobs and
leaving a vacant facility behind. Even if this is the case, we recommend that you
take a step back and set goals. Failing to do so could result in a waste of
valuable time and resources pursuing an idea that may seem feasible, but fails
to accomplish important goals or to meet the mission of your organization.
Depending on the goals you have set, you might take several approaches to
identify potential business opportunities.

Local Market Study - Whether your goal is to revitalize or fill space in a

neighborhood commercial district or to rehabilitate vacant housing stock, you
should conduct a local market study. A good market study will measure the level
of existing goods and services provided in the area, and assess the capacity of
the area to support existing and additional commercial or home-ownership
activity. This assessment is based on the shopping and traffic patterns of the
area and the demographic and socio-economic characteristics of the community.
A bad or insufficient market study could encourage your organization to pursue a
business destined to fail, with potentially disastrous results for the organization
as a whole. Through a market study you will be able to identify gaps in existing
products and services and unsatisfied demand for additional or expanded
products and services. If your organization does not have staff capacity to
conduct a market study, you might hire a consultant or solicit the assistance of
business administration students from a local college or university. Conducting a
solid and thorough market study up front will provide essential information for
your final business plan.

Analysis of Local and Regional Industry Trends - Another method of

investigating potential business opportunities is to research local and regional
business and industry trends. You may be able to identify which business or
industrial sectors are growing or declining in your city, metropolitan area or
region. The regional or metropolitan area planning agency for your area is a
good source of data on industry trends.

Internal Capacity - The board, staff or membership of your organization may

possess knowledge and skills in a particular business sector or industry. Your
organization may wish to draw upon this internal expertise in selecting potential
business opportunities.

Internal Purchasing Needs/Collaborative Procurement - Perhaps, your

organization frequently purchases a particular service or product. If nearby
affiliate organizations also use this service or product, this may present a
business opportunity. Examples of such products or services include printing or
copying services, travel services, transportation services, property management
services, office supplies, catering services, and other products. You will still need
to conduct a complete market study to determine the demand for this product or
service beyond your internal needs or the needs of your partners or affiliates.

Identify Business Opportunities

Buying an Existing Business - Rather than starting a new business, you may
wish to consider purchasing an existing business. Perhaps a local retail or small
light manufacturing business that has been an anchor to the local retail area or a
much-needed source of jobs in the neighborhood is for sale. Its closure would
mean the loss of jobs and services for your neighborhood. Your organization
might consider purchasing and taking over the enterprise instead of starting a
new business. If you decide to pursue this option, you still need to go through
the steps of creating a business plan. However, before moving ahead, these are
just a few important areas to research in assessing the business you plan to
purchase:

 Be sure to conduct a thorough review of the financial statements for the

past three to five years to determine the current fiscal status and recent
financial trends, the validity of the accounts receivable and the status of
the accounts payable. Are all the required licenses and permits in place
and can they be transferred to a new owner?
 Also look at the quality of key employees who, because of their expertise,
may need to remain with the business.
  You will also need to assess the customer or client base and determine
whether its members will remain loyal to the business after it changes
hands.
 Another area to evaluate is the perception or image of the business.
Inspect the facilities and talk to suppliers, customers and other businesses
in the area to learn more about the reputation of the business.
 At this early stage of your planning process, be sure to consult an attorney
experienced in corporation law. As a non-profit corporation, engaging in
income-generating activities not related to your mission may affect your
tax-exempt status. You may also wish to protect your organization from
any liability issues connected with the proposed business activity. After
you have decided on a particular business activity, have a qualified
attorney advise you on the proper corporate structure for your new
venture. In addition to qualified legal counsel, seek the expertise of an
experienced professional in that particular industry. He or she will bring
valuable knowledge and insights regarding the industry that will prove
extremely useful during the business planning process.

Advisory - You have decided on a business opportunity that meets the goals of
your organization. Now you are ready to test the feasibility of the venture and to
present your business concept to the world. A solid business plan will clearly
explain the business concept, describe the market for your product or service,
attract investment, and establish operating goals and guidelines.

 The first step in writing your business plan is to identify your target
audience. Will this be an internal plan the board will use to assess the
feasibility and appropriateness of the business? Or will this plan be
distributed to a larger external audience such as funding sources,
commercial lenders or the community to gain financial backing and
political support for the proposed venture? The content and emphasis of
the plan will shift according to the audience.

 You will also need to decide who will conduct the necessary research and
write the plan. The following table lists the advantages and disadvantages
of several options for getting the work done. You might consider a
combination of the options.

Creating One’s Own Business Plan

It is also important to establish a timeline for completing the plan. A business
plan can be completed by one staff member working full time in as little as a
week, although a thorough market analysis will add several days at least. A
committee will probably need much more time. Combinations of staff,
volunteers, consultants and a board committee may lengthen or shorten the
process depending on skill level, available time, experience with planning and
research, and the group’s facilitation needs. Your business plan should contain
the following sections:

 Executive summary
 Company and product description
 Market description
 Operations
 Management and ownership
 Financial information and timeline
  Risks and their mitigation

A solid business plan will clearly explain the business concept, describe the
market for your product or service, attract investment, and establish operating
goals and guidelines.

Features of the component of the Plan dealing with the Company and
its Product Description

In describing your company be sure to include what type of business you are
planning (homeownership development, wholesale, retail, manufacturing or
service) 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 a 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 operations. 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 articles from business-oriented newspapers and magazines,
research journals or other publications. Include these references in the
attachments of your business plan.

Product or Service
After describing your company and its industry context, describe the products or
services you plan to provide. Focus on what distinguishes your product or service
from the rest of the market. Discuss what will attract consumers to your product
or service. Provide as much detail as necessary to inform the reader about the
particular characteristics of your product that distinguish it from its competition –
many nonprofits, for example, expect to produce higher-quality housing than
otherwise exists in the area. Mention any distinctive elements in the
manufacture of the product, such as being “hand-made by a 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
Provide 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 service 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 service.
In other sections of the plan you will discuss the target market for your product
or service and also provide additional details on how the price of your product
fits into the overall financial projections for the enterprise.

Place
Describe the location where you will produce or distribute your product or
provide your service. 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 service.
Customers
In this section of your business plan, you will describe the customer base or
market for your product or service. 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).

Who will purchase your product or use your service? How large is your customer
base? Define the characteristics of your target market in terms of it’s:

 Demographics – Measures of age, gender, race, religion and family size.

 Geography – Measures based on location.
 Socioeconomic Status – Measures based on individual or household
annual income.

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 this 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 or service.

Competition
Discuss how people identified in your target market currently meet their need for
your product or service. What other businesses exist in your areas 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.

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.

Question 2. Write short notes on: a) sales projections b) importance of

creativity in Business.

Answer: Sales Projections can be expressed as follows:

 To 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.

 To 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.

Steps for Developing Sales Projections

Your business plan is not just a funding tool, but also a blueprint for how your
business should operate. The following are steps for developing sales
projections:

Step I:
Estimate
For each product or service, estimate the number of people who are likely to buy
and when they will buy it. You can get this information from asking your likely
customers about their possible use of your business, or you can base your
estimates on your knowledge of the market.

Step 2:
Use a Calendar
Estimate your sales and number of customers served during one week. Using the
totals for a week, make projections for each month. For the first few months,
keep in mind that business will start off slowly before people become more
aware of your business. Use will most likely increase as people learn about your
products and services. Seasonal variations may affect your business as well. You
will use these numbers to project your equipment, supply and staffing needs, as
well as income.

Cost Account Heads:

 Organizational Start up Costs
 Product Design/Development
 Research & Development
 Legal/Licensing Expenses
 Property & Facilities
 Land/Building Purchase
 Initial Lease Deposit
 Building Repairs/Improvements
 Equipment/Machinery
 Production-related
 Administrative/Office Equip.
 Materials & Supplies
 Personnel
 Key Employees
 Contract Labour/Temps
 Training Expenses
 Marketing Expenses
 Advertisements
 Brochures/Literature/Other
  Insurance Premiums
 Distributor Contracts
 Contingency (5%)

Expenses:
Costs of Goods Sold
 Materials/Supplies
 Labor
 Rent
 Utilities
 Insurance
 Admin. Exp. (PT Sec.)
 Legal & Accounting
 Marketing
 Equipment Maintenance/Supplies
 Facility Maintenance
 Fees/Miscellaneous

Debt / Equity Investment:

 Equipment Loan
 Building Rehabilitation Loan
 Grants
 Owner Equity

Expenses
 Cost of Goods Sold
 Wages & Benefits
 Materials
 Supplies

Overhead Expenses:
 Rent
 Utilities
 Building Maintenance/Security
 Marketing
 Accounting
 Legal
 Administrative Expense
 Interest Expense
 Depreciation

The Business Priorities are based upon six top-level objectives; these are:

 To make Business data available both to decision-makers and as much as

possible available in the public domain;
 To ensure all holders of Business information are able to participate.
 To ensure that the data available through the NETWORK are of known
quality;
  To ensure that the NETWORK Gateway gives access to data on Location
and species used to inform decisions affecting Business at local, regional,
national and international levels;
 To promote knowledge, use and awareness of the NETWORK;
 To enhance the skills base and expertise needed to support and develop
the NETWORK.

i) The objectives have cross-cutting themes which are:

A. Infrastructure development
B. Data standards and tools
C. Capacity building
D. Working with the wider public
E. Co-ordination and promotion

i) In addition, the partners will contribute to the overall realization of the

objectives through work that they initiate on their own account, but which does
not necessarily fall under the focussed objectives for the Network.

ii) A series of assumptions have been made in formulating the Business

Priorities and their associated work programme. These are:
 It is assumed that the present way of working, i.e. a lead partner approach
for each project will be retained;
 The plan is not intended to represent all the work that could be
undertaken;
 It is anticipated that other work towards the principal aim of adding
content and providing a fully functional gateway will be adopted by the
NETWORK as part of its programme, but this work would have to be
prioritized against this core activity and separately resourced;

To give additional focus to the challenging nature of the task that the NETWORK
is setting itself, a series of principle drivers have been recognized. The drivers
are:

 Processes – This driver relates to facilitated targeted action on the ground

through providing knowledge of resource location, extent, pattern of
distribution, data quality and gaps. It also has the potential for engaging
more partners in the NETWORK;
 Environmental Impact Assessment (EIA) and Strategic Environmental
Assessment – This driver is concerned with providing ready access to data
on location, extent, pattern and quality of Business.
 Data contributor engagement – This driver is concerned with accessing
sources of data for the NETWORK enabling the assessment of actions and
continual improvement in the targeting of actions from the two previous
drivers;
 Operational use – This relates to the use of the NETWORK within the day to
day business of agencies as a source of data relevant to local reporting or
casework;
 Generic enhancement – This driver encompasses capacity building and
Recording Schemes and other contributing organizations and user groups,
in order to ensure the continued and enhanced supply and use of
information.

These lead naturally to three broad areas of work:

  Developing the recording network;
 Enhancing the Internet Gateway in terms of its functionality and the data
it accesses;
 Ensuring that the benefits already secured through the earlier work are
maintained.

The plan also acknowledges the need to co-ordinate activity between the
members of the NETWORK and their partners, and to communicate the progress
and successes of the work programme.

b) Importance of creativity in Business: Everyone in business is creative

and some of most creative people are in manufacturing. They actually CREATE
products that change the world. Hence, importance of creativity in a business
cannot be sidelined as it leads to innovations which stem out of creative ideas
and it ultimately leads to the success of a business enterprise.

Best Creative Exercise Ever:

 Write down your ideas.
 You have a ton every day.
 But most of the time, 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 meetings.
 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”.

2. A 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.”

How to Lose an Audience…

 Show your audience slides with columns of numbers.
 Refuse to tell them a story about the meaning of the numbers.
 Do not read your speech or presentation.
 Instead, read your audience.

How about a Show?

Try “giving a performance” instead of merely “giving a presentation.”
Everyone in Sales Knows…
 Tell stories.
 Don’t just provide data.

Avoid Meetings.
Do not attend more than two meetings a day, or else you will never get any real
creative work done.

Get Fresh Ideas.

Leave the office building at least once a day.

Another Lame Excuse…

Designers should put more of their passion into designing great work, instead
of endless (boring) discussions about the superiority of the Macintosh over the
PC!

The Lame Excuse …

“I can’t [write/design/create] because I don’t have the latest [software/hardware/
upgrade]….”
You can’t let a machine take credit for your creativity.
And you can’t blame a machine for your creative failures, either.

Don’t Blame the Tool!

The more you become a master of your particular creative form….
….the fewer tools you will use.
Master carpenters use fewer tools than novices. So do cooks. Use what works.

Creativity: Use it or Lose it.

 Create something every day.
 Creativity takes place every day, not once in a while.
 It’s not rare.
 It’s just been mystified – Own your creativity.

Facts and observations

Giga-investments made in the paper and pulp industry, in the heavy metal
industry and in other base industries, today face scenarios of slow growth (2-3 %
p.a.) in their key markets and a growing over-capacity in Europe.

The energy sector faces growing competition with lower prices and cyclic
variations of demand.
Productivity improvements in these industries have slowed down to 1-2 % p.a.
Global financial markets make sure that capital cannot be used non-productively,
as its owners are offered other opportunities and the capital will move (often
quite fast) to capture these opportunities.

The capital markets have learned “the American way”, i.e. there is a shareholder
dominance among the actors, which has brought (often quite short-term)
shareholder return to the forefront as a key indicator of success, profitability and
productivity.

There are lessons learned from the Japanese industry, which point to the
importance of immaterial investments. These lessons show that investments in
buildings, production technology and supporting technology will be enhanced
with immaterial investments, and that these are even more important for re-
investments and for gradually growing maintenance investments.

The core products and services produced by giga-investments are enhanced with
life-time service, with gradually more advanced maintenance and financial add-
on services.

New technology and enhanced technological innovations will change the life
cycle of a giga-investment.

Technology providers are involved throughout the life cycle of a giga-investment.

Giga-investments are large enough to have an impact on the market for which
they are positioned:

A 3, 00,000 ton paper mill will change the relative competitive positions; smaller
units are no longer cost effective.

A new technology will redefine the CSF:s for the market.

Customer needs are adjusting to the new possibilities of the giga-investment.

The proposition that we can describe future cash flows as stochastic processes is
no longer valid; neither can the impact be expected to be covered through the
stock market.

Types of options
 Option to Defer
 Time-to-Build Option
 Option to Expand
 Growth Options
 Option to Contract
 Option to Shut Down/Produce
 Option to Abandon
 Option to Alter Input/Output Mix

Table of Equivalences:
INVESTMENT OPPORTUNITY VARIABLE CALL OPTION
Present value of a project’s operatingS Stock price.
cash flows.
Investment costs X Exercise price
Length of time the decision may bet Time to expiry.
deferred.
Time value of money. rf Risk-free interest rate
Risk of the project. σ Standard deviation of
returns on stock

Fuzzy numbers (fuzzy sets) are a way to express the cash flow estimates in a
more realistic way.
This means that a solution to both problems (accuracy and flexibility) is a real
option model using fuzzy sets.
Question 3. What factors are to be taken into account in a crisis
communications strategy?

Answer: The following items should be taken into account in the crisis
communications strategy:

 A crisis communication strategy should be developed and put in place.

 Communications should be timely and honest.
 To the extent possible, an audience should hear news from the
organization first.
 Communications 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 ask questions, if possible.
 Provide regular updates and let audiences know when the next update will
be issued.
 Treat audiences as you would like to be treated.

Communicate in a manner appropriate to circumstances at hand:

– Face-to-face meetings (individual and group)
– News conferences
– Voice mail/email
– Company Intranet and Internet sites
– Toll-free hotline
– Special newsletter
– Announcements 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 communications 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 a crisis. All
information should be funneled through a single source to assure that the
messages being delivered are consistent.

It should be stressed that the personnel be informed quickly regarding where to

refer calls from the media and that only authorized company spokespersons are
allowed to speak to the media. In some situations, an appropriately trained site
spokesperson may also be necessary.

Question 4. What elements should be included in a Marketing Plan

under Due Diligence while seeking investment in for your Company?

Answer: The Process of Due Diligence:

A business which wants to attract foreign investments must present a business
plan. But a business plan is the equivalent of a 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 management is
interviewed and a team of financial experts, lawyers and accountants descends
on the firm to analyze it.

First Rule:
The firm 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,
answers questions, makes presentations and serves as a coordinator when the
DD teams 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 subjects: Legal, Financial, Technical,
Marketing, Controls.

The Marketing Plan: Must include the following elements:

 A brief history of the business (to show its track performance and growth)
 Points regarding the political, legal (licenses) and competitive environment
 A vision of the business in the future
 Products and services and their uses
 Comparison of the firm’s products and services to those of the competitors
 Warranties, guarantees and after-sales service
 Development of new products or services
 A general overview of the market and market segmentation
 Is the market rising or falling (the trend: past 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 a 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 is 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, dealerships, 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 service (hotline, support, maintenance, complaints,
upgrades, etc.)
 Customer loyalty (example: churn rate and how is it monitored and
controlled).

A successful due diligence is the key to an eventual investment. This is a process

much more serious and important than the preparation of the Business Plan.

Question 5. Distinguish between Joint Ventures and Licensing,

explaining the relative advantages and disadvantages of each.

Answer: Licensing and Assigning IP rights:

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 an owner to
benefit from their work as they retain ownership of the patented invention while
granting permission to others to use it and gaining benefits, such as financial
royalties, from that use. However, it normally requires the owner of the invention
to invest time and 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
the patent.
Separate licenses can be granted for different ways of using the same
technology. For example, if an inventor 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 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.

An assignment of intellectual property rights is the sale of a patent right, or a

share of the patent.

It should be remembered that the person who makes an invention can be

different to the person who owns the patent rights in that invention. If an
inventor assigns their patent rights to someone else they no longer own those
rights. Indeed, they can be in infringement of the patent right if they continue to
use it.

Patent licenses and assignments of patent rights do not have to cover all patent
rights together.

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 inventor 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 considerably 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. For instance, you might negotiate an arrangement that
gives you license to use the patented 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.

Licensing Advantages
 An Inventive Incentive
 "Licensing", tried and true
 Fair and Balanced
 Product Exclusivity
 Inventions of interest to you
 You are free to view our inventions
 An informed business decision
 A production head start
 We are vitally committed to your success
  A resource for future projects

Joint Venture Agreements and Start-up Companies

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 through 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 a 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. The laws governing
partnerships and companies differ considerably from one country to another, and
this discussion is only intended to give a general flavour of the various options.
A joint venture agreement involves a formal, legally binding commitment
between two or more partners to work together on a shared enterprise. It is
normally created for a specific purpose (for example, to commercialize 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 consistent with your
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.

By contrast, a company is a new legal entity (a ‘legal person’ recognised by the

law as having its own legal identity) which can own and license IP and enter into
legal commitments in its own right. A spin-off company is an independent
company created from an existing legal body – for example, if a research
institute decided to turn its licensing division or a particular laboratory into a
separate company. A start-up company is a general term for a new company in
its early stages of development. If a company is defined as a limited liability
company, the partners or investors normally cannot lose more than their
investment in the company (but officeholders in the company might be
personally responsible for their actions in the way they manage the company).
This separate legal identity means that a start-up company can be a useful way
of developing and commercializing a new technology based on original research,
while keeping the main research effort of an institute focussed on broader
scientific and public objectives, and insulated from the commercial risks and
pressures of the commercialization process. At the same time, the research
institute can benefit from the commercialization of its research, through
receiving its share of the profits and growth in assets of the spin-off company,
thus strengthening the institute’s capacity to do scientific research.

The company is normally owned through shares (its ‘equity’). These effectively
represent a portion of the assets and entitlement to profits of the company.
Investors can purchase shares in the company, which is one way of bringing in
new financial resources to support the development of the technology – in
exchange, the investors stand to benefit from the growth in the company’s
worth, as their shares proportionately rise in value, and to receive a portion of
any profits produced by the company’s operations, commensurate with the
number of shares they own. If it is a public company, shares in the company can
be bought and sold on the open stock market. An initial public offering is when
the shares in a startup company are first made available to the public to
purchase. A private company’s shares, by contrast, are not traded on the open
market (but can still be bought and sold).

The option of starting up your own company to manufacture and market your
patented invention requires you to have business skills, marketing skills,
management skills and substantial capital to draw on for factory premises, hiring
staff and so on. But it also can offer a mechanism for attracting financial backing
for research, development and marketing, which can improve access to the
necessary resources and expertise.

Which model of commercialization is best for you?

Each new technology and associated package of IP rights is potentially

difference, and the mechanism you choose for commercialization should take
into account the particular features of the technology. One basic consideration is
to what extent you, as originator of the technology, wish to be involved and to
invest in the subsequent development of the technology. You will need to
compare the advantages and disadvantages of each model of commercialization.
Generally speaking, the higher degree of risk and commitment of finance and
resources you can invest, the higher the degree of control you can secure over
exploitation of the technology invention, and the higher the financial return to
your institution may be.

There are many possible variations on each of these general models, and in
practice they can overlap. In deciding which model of commercialization is best
for you, it is always a good idea to seek commercial or legal advice. Remember
that IPRs alone do not guarantee you a financial return on your invention. You
need to make good commercial decisions to benefit financially from your
intellectual property rights.
Properly managed, intellectual property rights should not be a burden but should
yield a return from your hard work in creating an invention.

Advantages of Joint Ventures:

 Provide companies with the opportunity to gain new capacity and
expertise
 Allow companies to enter related businesses or new geographic markets
or gain new technological knowledge
  access to greater resources, including specialised staff and technology
 sharing of risks with a venture partner
 Joint ventures can be flexible. For example, a joint venture can have a
limited life span and only cover part of what you do, thus limiting both
your commitment and the business' exposure.
 In the era of divestiture and consolidation, JV’s offer a creative way for
companies to exit from non-core businesses.
 Companies can gradually separate a business from the rest of the
organisation, and eventually, sell it to the other parent company. Roughly
80% of all joint ventures end in a sale by one partner to the other.

Question 6. You wish to commercialize your invention. What factors

would you weigh in choosing an appropriate course?

Answer: Following are the ways to commercialize my invention:

Licensing and Assignment

The difference between licensing and selling your invention is comparable to

leasing vs. selling house. When you sell your house, you transfer your title,
making someone else in charge of and liable for the house from that point on.
When you sell your invention, the scenario is the same, except that the process
is called “assigning” rather than selling. You, the inventor would be the
“assignor” and the person receiving the title or ownership of the patent would be
the “assignee.”
Instead of selling, though, you may choose to rent out your house. In this case,
you retain the title to the house and give someone permission to use it for a
limited period of time. In consideration for this, they pay you on a monthly,
yearly or other basis. The terms of this lease are entirely up to you and the
person leasing your house. It is up to you to negotiate within the boundaries of
the law.
When you license an invention, it’s nearly the same as leasing. You’re offering a
manufacturer, for example, the right to manufacture and sell your invention for a
period of time, and in consideration for this they pay you on a quarterly basis. In
this case you are the “licensor” and the company is the “licensee.” It is up to
the parties to negotiate the terms of the license within the boundaries of
antitrust laws and other regulations that would affect licenses and similar
business arrangements.

Should I Sell or License?

You will generally have a better chance of licensing your invention instead of
assigning (selling) your rights for two reasons:

 First, it is initially hard to ascertain what the eventual value of an invention

will be. This will almost invariably result in a win/lose situation. If the value
is estimated high, the inventor wins and the company loses. On the other
hand, if the estimates are low, the inventor loses out.

 Second, companies don’t like to pay cash up front unless they absolutely
have to. Generally, when a company makes a commitment to
manufacture and promote an invention, they are already anticipating a
substantial financial commitment for tooling, manufacturing setup,
 engineering expenses, and advance purchases of raw materials,
marketing, and promotional expenses. A company that is savvy with
licensing negotiations will state that the more money they pay the
inventor up front, the fewer resources they will have available to put into
the promotion. This is a hard point to argue against, particularly if you’re
interested in the long-range commercial success of your invention.

At this point, Inventors have often already incurred substantial initial expenses
for patenting, prototyping and research, and need to be reimbursed as soon as
possible. Therefore, the inventor can argue that the potential licensees should at
least reimburse them for these out-of-pocket expenses. After all, these are
expenses the company would have normally paid if they had developed such a
product on their own. At that point, the company may very well come back to the
table and agree to reimburse you for such initial expenses. However, they may
want to make it an advance against future royalties. Bear in mind that all
negotiations are unique and this is just an example.

When you assign (sell) your invention, you will typically lose control of it.
Although you may have cash in hand from the sale of your invention, the
company has the prerogative to ditch your technology and simply “sit on it”
unless you’ve made other arrangements. In some cases it is just as important to
the inventor to see his invention commercialized as it is to receive the cash from
it. Having an invention commercialized can give an inventor a substantial head
start in attracting interest in his additional inventions. This may eventually be
worth more to an inventor than the initial cash he would receive from his first
commercialized invention.

Should I Go For It Alone?

Some inventors prefer to keep their inventions close and go into business for
themselves, which comes with its own set of risks and rewards.

There are several different elements at play during the commercialization of an

invention: the company, the management, the technology, the market, and the
marketing team. Each of these is a variable. The more variables you introduce,
the greater the risk of failure. If you start with a new company under new
management with a new product, your chance of success is obviously much
slimmer than an existing company already in the field with experience and
knowledge in a similar product line. Even when you look at an experienced
company like 3-M, which brings many new products to market, you’ll find that
the company’s new products fail often. With all its resources, 3-M’s success rate
is said to be only 30%. Unless you have greater resources, your success rate
may be even less.

Because there are significant start-up risks, it’s important to seriously investigate
the distinct advantages of having your invention introduced by an existing
company with experience in your field can promote your product effectively and
already has a skilled sales force with an existing client base. These factors can
greatly reduce the amount of time it takes to introduce your invention to the
marketplace. What you lose in control when you license can be gained tenfold
from a timing standpoint, and in reducing your risk.

Licensing offers another strong advantage when it is time to sell your

manufactured invention to customers. Manufacturers who introduce only one
invention or a very small product line often have a hard time selling to large
accounts. Large retail outlets prefer to deal with companies where they can do
one-stop shopping. Buyers (or purchasing agents) for the big outlets want to
reduce the number of bills they get and the number of vendors they see each
week. This is why the introduction of a new invention to retailers by a new
company is particularly challenging.

Licensing also has advantages over starting your own company because few
products have an unlimited life cycle. In time, your invention may be replaced by
new technology. What will your company sell then? Most single-item companies
that are still around after five years have done so by introducing new products
and expanding their product line. Companies need new products to survive.

Sometimes starting your own company is the only way to go. If you’ve attempted
the licensing route and no manufacturer is interested in your invention at its
current stage of development, you may need to do a small market test with a
limited production run to prove your invention has sales potential. Then if your
sales results are positive, you may pique the interest of a potential licensee who
can take your invention to the next step.

It is easy to get ‘upside down’ financially with invention projects. This is

especially true since inventors have a tendency to overestimate the ultimate
value of their inventions. Get some realistic market research as early in the
game as possible. If you find that you must make a substantial investment to
actually manufacture an invention to prove its commercial viability and to
interest potential licensees, keep careful track of your expenses and constantly
weigh these expenses against any royalty potential that may result.

There are too many sad stories of inventors pouring money into inventions that
can never provide a return on their investment. Inventors always take a risk
when they spend time and money on an idea and if they’re lucky, it’ll pay off
quite well. The lesson is to minimize your risks so you can bail out or put the
project on hold if warranted. It will save you time, money, and the personal
energy you’ll need for future successes.