Expanding internationally is an important growth strategy for franchisors
Expanding internationally is an important growth strategy for franchisors. Critically discuss key considerations for UK franchisors if they decide to expand their operations overseas, drawing on relevant academic literature.
Franchising can be described as “... a system of distribution whereby one party (the franchisor) grants to a second party (the franchisee) the right to distribute products, or perform services, and to operate a business in accordance with an established marketing system...” (Hall, 1988). Globally, there are over 10,000 franchise networks, with sale representing 10% of world GDP. It can be said that franchising has become more popular due to the development of what is called ‘business format franchising’ (www.thebfa.org), this is the granting of a license by the franchisor to the franchisee, and allows the franchisee to trade under the trade mark or trade name of the franchisor, whilst being provided with continuous assistance from the franchisor, in return helping the franchisor grow their business.
However, there are tensions within business format franchising between the franchisor who ‘... desires market standardisation’ and the franchisee who ‘... demands adaptation’ (Fock, 2001).
This brings clear advantages to the franchisee, for example, there is no need for an innovative idea, as the franchisor has already had the idea and had it tested too. Becoming part of a franchise, it’s very likely it will already have a national advertising campaign as well as a well-established and positive reputation. Franchisees will most likely also be offered training schemes in all the business skills needed to run the business. Franchisees are offered economies of scale, by bulk buys, and customers are aware that franchisees are offering the best value for money, as ultimately they are a part of a much larger organisation. This reputation is a key consideration to take into account, as this is the image the franchisor is portraying
Franchising can be described as “... a system of distribution whereby one party (the franchisor) grants to a second party (the franchisee) the right to distribute products, or perform services, and to operate a business in accordance with an established marketing system...” (Hall, 1988). Globally, there are over 10,000 franchise networks, with sale representing 10% of world GDP. It can be said that franchising has become more popular due to the development of what is called ‘business format franchising’ (www.thebfa.org), this is the granting of a license by the franchisor to the franchisee, and allows the franchisee to trade under the trade mark or trade name of the franchisor, whilst being provided with continuous assistance from the franchisor, in return helping the franchisor grow their business.
However, there are tensions within business format franchising between the franchisor who ‘... desires market standardisation’ and the franchisee who ‘... demands adaptation’ (Fock, 2001).
This brings clear advantages to the franchisee, for example, there is no need for an innovative idea, as the franchisor has already had the idea and had it tested too. Becoming part of a franchise, it’s very likely it will already have a national advertising campaign as well as a well-established and positive reputation. Franchisees will most likely also be offered training schemes in all the business skills needed to run the business. Franchisees are offered economies of scale, by bulk buys, and customers are aware that franchisees are offering the best value for money, as ultimately they are a part of a much larger organisation. This reputation is a key consideration to take into account, as this is the image the franchisor is portraying
References: Alexander, N. (1995). ‘Expansion within the Single European Market: a motivational structure’, The International Review of Retail, Distribution and Consumer Research, 5(4): 472–87. Baucus, D.A., Baucus, M.S. and Human, S.E. (1996). ‘Consensus in franchise organisations: a cooperative arrangement among entrepreneurs’, Journal of Business Venturing, 11, pp.359–78. Collins, K. (2009). ‘Exploring Business.’ UK: Pearson Higher Education. p239-241. Cox, Juliet and Mason, Colin (2007). 'Standardisation versus Adaptation: Geographical Pressures to Deviate from Franchise Formats ', The Service Industries Journal,27:8,1053 — 1072. Dant, R.P. and Gundlach, G.T. (1999) ‘The challenge of autonomy and dependence in franchised channels of distribution – analysis and antitrust implications’, Journal of Business Venturing, 14, pp.35–67. Eroglu, S. (1992). ‘The internationalization process of franchise systems: a conceptual model’, International Marketing Review, 9(5): 19–30. Falbe, C.M. and Dandridge, T.C. (1992). ‘Franchising as a strategic partnership: issues of co-operation and conflict in a global market,’ International Small Business Journal, 10(3), pp.40-51. Floyd, C., And Fenwick, G. (1999). ‘Towards a model of franchise system development’, International Small Business Journal, 17(4), 32 – 48. Fock, H.K. (2001). ‘Retail outlet location decision-maker: franchisor or franchisee?’, Marketing Intelligence and Planning, 19(3), pp.171–8. Hall, P. And Dixon, R. (1988). ‘Franchising’, London: Pitman publishing.