MODES OF ENTRY INTO INTERNATIONAL MARKETS:The franchiser’s balance,

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International Marketing MKT630

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

International Marketing MKT630

�

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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