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Licensing proprietary technology to foreign competitors is the best way to give up a firm's competitive advantage.
By allowing foreign competitors to use your technology, you forego most gains in the technology. This reduces the organization's market power as most of the market is taken up by other established foreign competitors. Once they develop better mechanisms of using the technology and boost their efficiency, they are likely to outcompete the initial organization and take up its market share.
Additionally, by licensing foreign organizations, the firm is less likely to factor in development and research costs in the bid. This gives the foreign company a costless technology that they have not invested in and therefore once they begin making sales they record profits immediately since they incurred no research and development costs. This is a risk in the original firm's market control of the product.
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Sep 24th, 2015
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