Question 1:
As franchisors enter the foreign markets for the first time or extend their international presence
into more distant locales, they must become familiar with and adapt to environmental differences
based on the country’s cultures, economics and politics. (Miller, 1992). Speaking of differences,
franchisors themselves vary in terms of size, scope, experience, capabilities, and resources that
they utilize to carry out the task of successful global expansion. Proper strategic alignment
(Venkatraman & Camillus, 1984) requires the development of international franchise strategies
that successfully integrates distinct franchisor characteristics with unique environmental
conditions prevalent in host country markets (Miller, 1992). Franchise industry observers note
extensive use of only three generic franchising options (i.e., direct franchising, master
franchising and area development) to solve the foreign expansion and distribution challenge.
(Petersen & Welch, 2000; Steinberg, 1994).
We begin by describing the growth of franchising, particularly in foreign markets. After this, an
examination is conducted which examines the development of franchisor capabilities through
successful experience. After drawing on the franchise literature and other relevant literatures
(e.g., competitive strategy, international market selection, entry mode, international business
expansion, etc.), what we identify is that even though there is an abundance of possible strategic
alternatives, there is a narrow set of strategic approaches and competitive strategies that are most
appropriate for franchisors to utilize in the pursuit of global markets.
Advantages:
- Market Penetration
This ties in intimately with the upside of accelerated expansion. More than just expanding
quickly, there is the attractive chance to consider markets that may just seem minimal to
other corporate branches. Franchisees, in light of the fact that they absorb most of the
operational, cultural and financial risk can open and operate a successful
franchise/establishment in business sectors that the franchise’s competitors will not consider.
This permits you, as a franchisor, more prominent market infiltration at lower cost.
This franchising strategy can prove to be largely profitable for young and new businesses that
are looking to further expand their business and penetrate a certain untouched market. A
sound strategic plan like this can slingshot your potential business idea into a worldwide
organization. For example, 7-Eleven works in excess of 56,000 stores across 18 nations.
Tram brags more than 44,000 stores in 111 nations and McDonald’s operates in 118
countries. On the off chance that you (the franchisor) work a business with multiple locations
or would consider working across numerous demographics.
- Accelerated Expansion
Quite often, the path to growing an effective business is completely tied to good timing.
Development happens fairly quickly, and in spite of the fact that you may have the most
groundbreaking business idea, getting it out and into the market and gaining profit by it
quickly is essential. One of the more significant benefits of franchising is that it speeds up
expansion of your organization. It is easier to handover primary and secondary business
activities to the franchisee on the host country grounds so you don’t have to worry about
utilities, staffing, managing etc, and that's only the tip of the iceberg.
Subsequently, your business appreciates franchise locations springing up more quickly than
if you were opening your own branch areas, and for a fraction of the otherwise expense.
Furthermore, more areas create more established income, the vast majority of which is not
spent on overhead expenses and is only pure profit. Accelerated expansion leads to more
franchise awareness, and if it proves successful then again, take the example of McDonald’s
or Chick-fil-A, your brand too can flourish and become a household name sooner than you
may anticipate or think.
Disadvantages:
- Lack of control:
It is important for you to note that as a franchisor, you will not have the same level of control
over the everyday tasks and operations that happen at any franchise, as compared to a
building that is owned by your company itself. You as a franchisor are not responsible for the
hiring, firing, monitoring, scheduling, disciplining and compensating tasks that take place at
a franchise. That is the job of the franchisee to attend to those tasks and make sure they are
carried out efficiently and properly.
If it’s your own company or organization, you as a franchisor can hire or fire employees but
when it comes to firing a franchisee, that decision would not be carried out with the same
level of discretion. However, you can still terminate a franchisee for either not maintaining
the standard of your franchise or violating any franchise agreements and laws.
- Franchising Investment
As a new franchisor, it is of paramount importance for you to have anticipated costs when it
comes to investing in franchises. Yes, franchising is often considered to be a low-cost
method of expanding your business. But this doesn’t mean that it is a totally cost-free
operation. In terms of time and capital costs, the areas that you as a franchisor, need to
anticipate costs in are creating your business plan and financial cycle, developing the
appropriate and proper legal arguments, developing a franchise’s operational manual and
other quality control documents, systems and processes. Some more areas include, printing
brochures, letterheads, marketing for new franchisees, training people for the franchise
process, creating a new franchisor legal entry and refining local store marketing materials to
be used by franchisees at franchises.
Although, for some companies, opening a franchise doesn’t have that many costs for
development as compared to some others, and their returns are sometimes higher than the
initial investment cost at the time of opening a franchise. The amount of physical or financial
capital you require depends upon what your goals for your organization are but still,
whichever the case is, it is not wise to go into franchising if you are under-financed, as that
may lead to more loss than profit in some cases.
We have seen the advantages and disadvantages of using franchising as a business growth
strategy from the perspective of a franchisor. Now, let’s look at some of the qualities that a
franchisor looks for in a franchisee.
Willingness to follow the system:
Quite possibly the main benefit for a franchisee buying into a franchise opportunity is that a
franchisee doesn't need to re-develop the wheel. They don't need to re-think the entire
system. This franchise framework has effectively been created and improved by the
franchisors over the long run and this system, undoubtedly, has demonstrated to be fruitful. A
franchisee should simply follow the framework to see a sound profit from speculation. It may
be enticing to put your stamp on your business when you become a franchisee, yet this can be
unsafe to the franchise framework instead of advantageous. The general franchise brand can
be risked on the off chance that the franchisee does not adhere to the standards as far as
showcasing, deals and administration. Keep in mind, the franchise framework has been set up
with a particular goal in mind on purpose. Successful franchises blossom with consistency
across their organization, so it's fundamental that the franchisees are set up to cling to the
principles. On the off chance that you have a solid innovative soul but franchising may not be
the right profession for you.
Financial Capability:
It is for a very solid reason that purchasing a franchise is called a venture. If not all then,
most of the franchises require an underlying or an initial franchise charge and continuous
royalties to be paid. Some franchisors request a commitment to a showcasing store as well.
Before you even consider turning into a franchisee, you should be certain that you have the
way to back this important franchise venture. If all things are considered, you will likely
require working capital with the goal that you can meet other monetary commitments both
personally and expertly until your franchise is or starts making profits.
Networking Skills:
If you're a franchisor and looking for potential candidates for franchisees for your firm then,
one of the traits you will definitely be looking for in a franchisee is Networking Skills. Being
able to network effectively with other business owners will put you in the shortlisted
candidates as having this quality will be beneficial for you in the long run. This will amount
to your community being great for your (franchisee's) personal development, as well as your
franchise. You can also learn a considerable amount from other franchisees from within your
network. For example, if you're a new franchisee, but not that well experienced at running a
franchise. In a situation like this, you would look for a franchisee that has good networking
skills, which will allow for you, the franchisor, and the franchisee to observe and learn from
different franchises and businesses present in that region. What you should do, and where
your networking skills will come in handy is having good relations with other franchises and
businesses in your area as this will allow you to learn from franchises that are more
established and experienced than you. Good franchisors encourage their franchisees to meet
up to share stories, ideas and problems by arranging regular networking events. Ensure you
make time to attend these so that you can learn from those more experienced than you.
Conclusion:
There is no doubting the fact that franchising is probably the fastest way to upscale a
business, without compromising on the brand values, quality and the brand image. There is
also no doubt that it is susceptible to the political system and the, economic situation of the
host country, but what business is not? Franchising on any given day, is safer as it eliminates
expansion costs and doesn’t open you up to significant financial loss like other business
models. All you have to do is be careful and not give in to every tempting offer and forgo
other red flags in a franchisee as that will do more harm than good for your business name in
the long run.
Bibliography
Miller, K. (1992). A framework for integrated risk management in international business.
Journal of International Business Studies. 23, 311-332.
Venkatraman, N., & Camillus, J.C. (1984). Exploring that concept of “fit” in strategic
management. Academy of Management Review. 9 (3), 513-525.
Petersen, B., & Welch, L.S. (2000). International retailing operations: downstream entry and
expansion via franchising. International Business Review. 9 (4), 479-496.
Steinberg, C. (1994). A guide to U S franchise strategies. World Trade. 7 (4), 66-71.
Stanworth, J. and Purdy, D. (1999) Franchising Your Business. London: International
Franchise Research Centre/Lloyds TSB, University of Westminster.
Question 2:
KFC - A Franchising Giant
Franchising – Franchisor and Franchisee relationship
Franchising is a business module that has propagated business for many big names. The
franchisors, which are the owners, use their already established names and make use of the
quality. They can provide to target a niche via franchisees. Thus, franchisors are the brands that
want to globalize by the use of franchisees that possess better knowledge of their locality so they
buy a franchise from them and the owners allow them to run the brand’s business as an
independent branch with some rules and regulations where some revenue goes back to the
original.
KFC as a franchisor
KFC is an enormous name in the franchise world. It is natural to think how KFC, from its head
office (in 1900) in Colonel Sanders Lane in Louisville, Kentucky, expanded so rapidly that it is
now found almost everywhere in the world. There must be something to their business model
that is working efficiently. The answer to that is they franchised their business. They realized
soon enough that they cannot globalize on their own. So they used their well-established brand
name to spread their products and services throughout the world. Think if they had not done it or
had wanted to “preserve their business” by not giving it out to franchisees. KFC probably would
not have been anywhere other than Kentucky or maybe the US, because there is a limit to how
much the core team can travel and do on their own.
A franchisee buys a branch with a fixed franchise amount and can operate independently but that
doesn’t mean the buyer owns the whole branch without any consequences. If that were the case,
the brand name would be damaged long ago. There is proper training that goes into it so that the
services, the menu is pretty much the same, the recipes, the technology is the same. There are
just some additional dishes in the menu to cater to the tastes of the specific country they’re in.
Like riding on the trend waves and other marketing schemes. (About Us, 2021). This ensures that
the franchise is not limited and is not completely overpowered by local competition. It also
ensures that people accept it as their own and do not retaliate against it, considering it a foreign
entity.
KFC’S Franchising Process and Strategy
KFC is successful because it has instilled the belief in its
consumers that once they enter, they will:
- Get quality food
- Be served in minimal time
- Have a variety of options
- Be subjected to a standard ambience
This is why KFC has to make sure the franchising process
does not affect their name and this belief that is instilled
in their customers. Therefore, they do business smartly by
compulsory continuous assistance and training. The
general price for a franchisee to buy a store is 45,000$ but the overall investment costs
1,309,900$ and 750,000$ liquid assets to apply for a branch or store. Once your application is
accepted, you are presented with the option to open up a joint unit with Taco Bell or a lone KFC
branch. KFC’s representatives help in the setting up of the franchise and all that’s left is applying
for the franchise loan and building the restaurant. Allowing the Franchisee to make some
personal changes and give them control over day-to-day business activities helps maintain the
name of the brand and also give the franchisee a sense of control over their business. (Achola,
M., 2021)
Growth of KFC
The franchising process has increased the business worldwide with fewer risks and more profits
for KFC while making the management easier for them. The more the brand spreads, the more
brand awareness it gets. Thus, with maintaining the superior quality of food and making good
franchising decisions, their business is successful. (Yükselen, 2013, p. 57). They have been
successful in growing their business through proper advertisement. The quality is displayed in
their advertisement and is also observed on visiting the franchise. KFC has set its standards high
and their numerous franchises that are spread widely all over the world can be marked as one of
the significant reasons behind their success. Moreover, the strategies set by the KFC authorities
have been efficient enough to deliver their advertisement through a proper channel and people
are inspired by the quality and taste of their products and ultimately they have gained the trust of
their customers. Customer satisfaction is one of the major issues that plays an effective role in
the growth of any organization. Since the quality delivered by KFC is satisfactory and according
to the desired quality, the company has succeeded in having the trust of their customers. One
another reason behind the global success of KFC is that the strategies that revolve in their
organization include an important strategy known as local culture strategy. This simply means
that the organization focuses on the cultural dishes and eating habits and observes the products
that are liked by the people in that specific community. This strategy has proved to be fruitful
and has contributed a lot to the growth of KFC.
Bibliography:
KFC. 2021. About Us. [online] Available at: <https://www.kfcpakistan.com/page/about-us> [Accessed 29
June 2021].
Achola, M., 2021. Franchising as a market entry strategy by Kentucky fried chicken into Kenya.
[online] Erepository.uonbi.ac.ke. Available at:
<http://erepository.uonbi.ac.ke/handle/11295/99186>
Yükselen, C. (2013). Pazarlama İlkeler-Yönetim-Örnek Olaylar. 10. Baskı, Detay Yayıncılık,
Ankara.
