Journal of International Business Studies

, Volume 40, Issue 4, pp 559–577

Licensing duration in foreign markets: A real options perspective


DOI: 10.1057/jibs.2008.71

Cite this article as:
Jiang, M., Aulakh, P. & Pan, Y. J Int Bus Stud (2009) 40: 559. doi:10.1057/jibs.2008.71


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


contract duration European option foreign entry modes licensing, real options 

Copyright information

© Academy of International Business 2008

Authors and Affiliations

  1. 1.Faculty of Business, Brock UniversitySt CatharinesCanada
  2. 2.Schulich School of Business, York UniversityTorontoCanada

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