Effective international marketing in globally franchising firms. assignment

The first, resource scarcity theory, contends that companies lack the resources such as capital, local market knowledge, and managerial talent to open international outlets on their own (Altinay 2004, 427). By recruiting local franchisees who supply capital, management, and knowledge of the local market, franchising organisations can achieve internationalisation not otherwise possible (Altinay 2004, 427). The parent company would not be able to expand, particularly on an international level, without the assets offered by the franchisee.

This theory is more easily applied to small and medium-sized firms which obviously lack the assets for internationalisation than it is to either McDonald’s or Benetton. Interestingly both organisations do have some company-owned holdings. For McDonald’s part, Ray Kroc once contended he was in the real estate business, not the restaurant business, citing the large passive income generated from the leasing of McDonald’s properties to individual franchisees (Vignali 2001, 97). Agency theory is based on the relationship between the principal party, in this case the parent company, who owns or control a set of economic assets or functions.

MARKET CHOICE Choice of market has also been a subject of much research. “ Each?? concept and country must be considered separately in relation to a multitude of issues about the market, potential franchisees, legal matters, receptivity to franchising in general, and feasibility of the particular concept” (Maynard 1995, 69). “ In international markets, franchise relations are influenced by the extent to which the overseas franchise system can be transferred into the local market in terms of product acceptance, suitable local presentation and transferable support services” (Connell 1999, 86).

Legal concerns are of particular importance, since they differ so greatly from country to country. For example, there is currently no legislation in the UK that regulates franchising (Hoar 2003, 77). The European Union adopted block exemption for franchises, which protects them from antitrust laws. “ France, Mexico, and Brazil have enacted laws similar to those of the United States, requiring franchisors to provide presale disclosure to prospective franchisees, while Australia and Italy have adopted voluntary codes pertaining to presale disclosure and other requirements” (Maynard 1995, 71).

While it requires greater involvement by the parent company, it also allows the organisation to be more selective in franchisee choice and therefore have more control over the foreign operation (Maynard 1995, 68). Franchisees may be solicited through newspapers or similar media outlets, but are more commonly sought through recommendations of other successful franchisees (Noren 2001, 62). Sometimes the parent company actually joins with a local firm to move into a foreign market. This can be through acquisition or merger, but is more commonly accomplished through a joint venture.

This is when the companies join forces to create a distinct third company owned by both partner firms” (Maynard 1995, 66). “ Joint ventures create more-cumber-some tax and financial issues than the other two approaches, but they have other advantages, which vary depending on the partnership arrangement” (Maynard 1995, 68). The created company then sometimes initiates or supervises franchise relations within its country or geographical region, and sometimes oversees company-owned units (Maynard 1995, 68). Some initiatives put forth by franchisees involve operations within the company. The most critical facilitator of internal market initiatives is the credibility of the subsidiary in the eyes of the parent company” (Birkinshaw 2000, 26). Such initiatives are geared towards rationalising and reconfiguring the systems within the parent company and increasing the efficiency of resource use, rather than improving external variables or increasing the firm’s resource base (Birkinshaw 2000, 27-28). Overall, direct and master franchising are the most commonly used methods for market entry by UK firms. They allow firms of various sizes, from small chains to large multinationals, to successfully internationalise.

If no such structure exists, franchisees will often act as free agents, making decisions and taking actions “ that they believe are in the best interests of the corporation as a whole,” whether or not these conform to the expressed desires of the parent company (Birkinshaw 2000, 2). Research indicates that four factors enhance initiative at the subsidiary or franchise level:?? autonomy, resources, integration and communication (Birkinshaw 2000, 31). High levels of autonomy and resources enhance local and global initiative, but detract from internal initiative.

High levels of integration and communication enhance internal initiative, but detract from local and global initiative (Birkinshaw 2000, 31). “ Local market initiatives are facilitated most effectively through a moderate level of autonomy in the subsidiary coupled with a fairly strong relationship with the parent company” (Birkinshaw 2000, 23). In terms of marketing, local franchises have valuable input needed by the marketing teams at the corporate office, and should be respected for both their ideas and their first-hand knowledge of whether something is working.

Retail internationalization: evolution of theory and practice. In International Retailing: Trends and Strategies, McGoldrick, P. J. , Davies, G. (eds), London: Pitman, pp. 51??? 73. Connell, J. 1999. Diversity in large firm international franchise strategy. Journal of Consumer Marketing, vol. 16, no. 1, pp. 86-95. Doherty, A. M. , Quinn, B. 1999. International retail franchising:?? an agency theory perspective. International Journal of Retail & Distribution Management, vol. 27, no. 6, pp. 224-236. Elango, B. , Fried, V. 1997. Franchising Research:?? A Literature Review and Synthesis.

Journal of Small Business Management, July 1997, pp. 68-81. Eroglu, S. 1992. The Internationalization Process of Franchise Systems:?? A Conceptual Model. International Marketing Review, vol. 9, no. 5, pp. 19-30. Hoar, R. , 2003. How to play the franchise system and win. Management Today, June 2003, pp. 76-79. Huszagh, S. , Huszagh, F. , McIntyre, F. 1992. International Franchising in the Context of Competitive Strategy and the Theory of the Firm. International Marketing Review, vol. 8, no. 5, pp. 5-18. Ivey, J. 2002. Benetton Gambles on Colour of the Future. Corporate Finance, June 2002, pp. 13-15.