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MODES OF ENTRY INTO INTERNATIONAL MARKETS
Franchising
Franchising:
a form of licensing
• a contractual
arrangement in which a firm (the franchiser) sells the right to use its
intellectual
property (technology, patents, work methods, brand names, trade
marks, copyrights, and company
name) to a firm (the franchisee) in return for fees
• The franchiser
provides significant assistance and/or exercises significant control over the
franchisee’s method of operation.
Types of franchise agreements:
• Product/trade
name franchises
– distribution of
product in a specified territory or location with the use of manufacturer’s
trademark.
– car dealerships,
petrol service stations, soft-drink bottles.
• Business format
franchises
– incorporates the
licensing of a trademark for business in a specified territory along with an
entire
system for conducting a business.
– These now account
for nearly 75% of all franchise businesses, examples are McDonalds, KFC,
Bodyshop, Giordano concept shops etc.
Franchising strategies for rapid growth in international
markets:
Single-unit franchising
– the franchiser
grants to an individual franchisee the right to operate a single unit within a
defined territory.
• Multi-unit
franchising
– involves
granting the franchisee the right to operate more than one franchise from the
same
franchiser
• Conversion
franchising
– acquiring and
converting existing business into a franchise
• International
franchising commonly involves “Master Franchising” and joint-ventures
• Creative
franchising can include many things ranging from money-back guarantees, and
stock
ownership, to the use of sophisticated management techniques
Key considerations in franchising:
• franchising
package must be sound and cohesive, adapted to environment of target country
• franchiser must
be able to provide value to franchisees on continuous basis
• adequate
financing
• careful selection
of franchisees
• building strong
cordial relationships with franchisees
• providing
continuing support to franchisees
• compliance with
foreign regulations
The franchiser’s balance:
• Positive
factors
– demonstration
effect
– rapid expansion
of business
– franchisee’s
financial contribution
– franchisee’s
motivation and local knowledge
– low risks
involved
• Negative
factors
– lacks ultimate
control
– demands of
training
– protection of
intellectual property
– creating future
competitors
– misuse of
franchise rights
– low profitability
The franchisee’s balance:
•
Positive
factors
– well known brand
name
– training
– low failure rate
– continuing
technology and management skills transfer
– financing support
– independent yet
linked to larger business and an international network
• Negative
factors
– inappropriate or
unfamiliar brand name
– exaggerated or
deceptive claims
– inadequate
support with purchase requirements
– unsuitable
technical, managerial or marketing know-how
– lack of security
– excessive initial
investment
– proliferation of
outlets
– disadvantage in
negotiations
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