While COVID-19 dwarfs the recent macro-economic risks by magnitude, we shall not forget that there will always be risks affecting your business. The US-China trade war, stagnating consumer demand in the developed world, a looming recession – these are a few of the concerns from CEOs and business executives when they consider the global economic outlook.
During an uncertain period or recession, companies face two deadly dynamics: higher stock and lower demand. This year, the pessimistic outlook to find a vaccine quickly to allow life to get back to normal, as well as political and social tensions, fuel the downward spiral and exemplify those risks.
Margin erosion leads to non-compliant behavior
Competitive pricing becomes a common strategy for many companies when faced with such dynamics. And this, in turn, often leads to price wars. Competing licensees will try to beat each other on price, and small margins become even more marginalized. A winner-takes-all mentality creates a zero-sum game for the parties involved, and some market participants will look for ways to lower their costs to maximize returns.
The risks are real as under-reporting, misreporting, or non-reporting of royalties appear as quick mechanisms to reduce BOMs and compete more effectively on price. And as your licensees engage in this price bidding, the costs are passing directly to you – the licensor – in the form of lower royalties.
Act now to avoid being left behind!
It might be tempting to give in to helplessness and blame everything on external factors. But the reality is that you can do a lot to mitigate some of those external risks, protect your businesses and employees, and safeguard, or even recover, much-needed cash to push your business forward.
Now is the time to set up a license compliance program to protect against some of those risks and to ensure you recover lost revenues, so you remain competitive. If you already do have a license compliance program in place, you are well-advised to do a health check on your program. Ask yourself the tough questions:
- Are you set up correctly (geographical coverage)?
- Do you have the right skill set on your team (languages and technical skills)?
- Are you getting the best ROI on your compliance investments?
Consider how the execution of license compliance activities is changing and evolving in the post-COVID era. The times where your third-party providers were sending their staff around the world to visit licensees are over. What will become the new normal is a world of remote engagements. Surely, face to face visits will never disappear entirely, but remote audits will become more commonplace, so adapt your strategy now.