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International
Marketing MKT630
VU
Lesson
# 24
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
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International
Marketing MKT630
VU
·
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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