CHAPTER TWELVE

INTERNATIONAL FRANCHISING
Griffin, R.W. & Pustay, M.W. (2003).
International business: A managerial
perspective. (3rd. Ed. Pg. 329-330). New
Jersey: Printice Hall.

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 CHAPTER OBJECTIVES
• To discuss certain market conditions before
international franchising.
• To identify 10 ways to go to international
business.
• To examine the method of international
franchising.
• To define co-branding and causes of co-
branding.

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International franchising – market
conditions
• The franchisor has been successful domestically
because of unique products and advantageous
operating procedures and systems.
• The factors that contributed to domestic success –
popularity, efficiency and lower prices.
• The franchisor having number of outlet
domestically.
• Foreign investors must be interested in entering into
franchise agreements.

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 10 ways to go international
1. Strong senior management buy-in to “going
international.”  
2. Have a proactive “going international” strategy and
business plan.  
3. Have a clearly defined market and competitive
advantage.
4. Have a good record of success in your country.
5. Have documented training, support and marketing
programs.

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 10 ways to go international
6. Have an intranet for cost-effective training, support
and communication
7. Have system standards and reporting processes in
place.  
8. Prepare to research your market and competitors.
9. Prepare to conduct due diligence on overseas
candidates.
10. Apply for trademarks to protect your intellectual
property and your brand value.

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 Method of International
Franchising

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 Master Franchising
• The master franchisee maybe an individual,
small business, large corporation or
conglomerate which assumes the rights and
obligations of establishing franchises
throughout the country.
• Master franchisees may choose either to
engage sub-franchisees or to open all stores
themselves.
• The master franchisee in a foreign country
assumes the role of franchisor.
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 Cont……………….
• Royalty fees are generally paid by each sub
franchisee through the master franchisees; the
master franchisees keep up to 50 percent of
these royalty payments and submit the other
50 percent back to the headquarters operation.
• Almost all advertising fees are also paid directly
to the master franchisee, who then uses them
for local (or national) advertising.

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 Licensing
• One of the most common methods of international
franchising is for the franchisor (licensor) to enter
into an agreement with a licensee (franchisee) and
offer the right to use a product, good, service,
trademark, trade secret, patent, or other valuable
item in return for a royalty fee.
• Coca-Cola has entered most of its international
markets by licensing bottlers (technically, franchising
bottlers) throughout the world and providing the
syrup necessary to produce the soft drink.
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 Joint Venture
• The franchisor joins with local citizens in setting up
production and/or market locations.
• Joint ventures are generally established through (1)
joint ownership ventures, (2) management
contracting, and (3) contract manufacturing.
• Many foreign countries require that the franchisor
invest or buy interest in the local franchisees before
starting the business.
• McDonald's Corporation opened a joint venture
restaurant in the popular Piazza di Spagna in Rome.
Italy is a major large European market.
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 Direct Investment
• The franchisor simply invests in company-owned
stores in foreign countries.
• This is a very high-risk way of entering foreign markets,
however, and franchisors are well advised to avoid this
method.
• The franchisor maintains full control over the
operation and management of the franchise.
• The major problem with this type of investment is the
exposure of a large investor to many business and
political risks. Currency controls, market changes, or
even expropriation may cause the demise of these
franchises in foreign countries.
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 Exporting
• Many franchisors, including General Motors and
Goodyear Tire and Rubber, enter foreign markets
through exporting.
• They manufacture their products here in the United
States and sell them through franchisees to
customers in foreign countries.
• The foreign franchisee becomes the dealer or
operator for the franchisor.
• This method of entering foreign markets is generally
the least costly and requires the minimum change in
the operation of the franchisor's company.
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 Co-branding

Co-branding occurs when two brands are

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 Emergence of Co-Branding
• Mature Markets—Many franchise sectors are
mature markets that provide little opportunity
for sale profit growth through traditional
outlets. Co-branding represents a new
approach that can revitalize mature units.
• Labor Shortages—Many co-branded units that
share space require only about one-and-a-half
times the labor of a single unit, not double it.

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 Motivational Factors of Co-
Branding
• Land Shortages—Retail sites that were
previously passed over by a franchisor
because they were too large or traditionally
inappropriate for a stand-alone unit are now
feasible with co-branded units.
• Consumer Demands—Franchising customers
today are looking for convenience. They are
also looking one-stop shopping.

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 Recap………………
• There are many ways can be used if the
franchisors would like to expand their
business abroad.
• There are 5 methods of international
franchising.
• There are 4 motivational factors of co-
branding.

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