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. Journal of International Business Studies (2009) 40, 559–577. doi:10.1057/jibs.2008.71

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and Key Results■ Existing research on international licensing focuses on firm decisions related to the choice of licensing versus alternative modes of entry into foreign markets, the timing of licensing within the technology life cycle, and appropriate compensation structures to collect rents. This paper complements and extends this stream of research by focusing on decisions related to granting exclusive licensing rights to a technology in foreign markets. ■ The decision surrounding licensing exclusivity is based on the consideration of monopoly rents, technology transfer costs and transaction costs. ■ Factors related to the nature of the technology being licensed, the foreign market environment in which it is licensed, and the characteristics of licensor and licensee firms are likely to influence the choice between exclusive and non-exclusive licensing in a particular foreign market. ■ Propositions developed in the paper incorporate the direct and interaction effects of these three set of variables in predicting exclusivity decisions in international technology licensing.