Whilst in general, franchising is a popular and successful mode for foreign market entry, there are a few potential shortcomings.
Is franchising a good market entry strategy for your business?
The market entry mode that you choose will also determine your level of involvement in the new market. If you are not loaded with capital to invest in opening company branches in other markets, then franchising could be the apt market entry strategy for your business.
What are the benefits of franchising?
From the side of franchisors, franchising is an expansion strategy, a foreign market entry mode or market entry strategy, and/or a distribution strategy. These benefits allow a business organization to enter or expand into new markets and distribute its goods or services with minimal costs associated with expansion and operations.
How do you get paid as a foreign franchisee?
In exchange, you get paid in the form of franchising fees (and, of course, a sizeable cut of the profits). This method has several advantages; it is a very inexpensive way of entering a foreign market, as the brunt of the investment is borne by the franchisee. Import regulations and government restrictions also do not target franchising businesses.
What is the best market entry strategy for foreign companies?
Joint Ventures In many countries, joint ventures (JVs) are often the only viable market entry strategy available to foreign businesses. Governments often erect tax barriers and ownership restrictions that target foreign companies in an attempt to protect and encourage local entrepreneurs.
What is franchising in business?
Franchising is a business strategy and a specific marketing strategy that involves a business organization or franchisor licensing its business model, operational procedures, and intellectual properties such as trademarks, as well as providing the rights to sell its branded goods or services to a third-party or ...
Why is franchising important?
Franchisees have a better understanding of the local market in which they operate and the customers they serve. Both franchisors and franchisees can share build upon these insights to improve their brand, products, and customer service.
Why is quality control important in franchising?
They need to promote quality control to ensure product consistency and uniform customer experience across its entire franchise network. They also need to ensure that franchisees adhere to marketing guidelines to ensure consistency in messaging and branding. Poor products or customer experience from a single franchisee can affect the entire brand of the franchisor.
Why is franchising good?
On the other hand, from the side of franchisees, the benefits of franchising center on lowered business development and marketing costs due to the established business model and branding of the franchisor. Franchisees can essentially capitalize on the capabilities and competitiveness of the franchisor.
What are the disadvantages of franchising?
Another disadvantage of franchising for franchisees is cost. Franchising from established organizations such as Subway and McDonald’s is very expensive. Note that aside from royalty fees for the trademark and intellectual property, franchisees are also obliged to pay for the training and advisory services provided by the franchisors, ...
What are the pros and cons of franchising?
From the side of franchisors, franchising is an expansion strategy, a foreign market entry mode or market entry strategy, and/or a distribution strategy. These benefits allow a business organization to enter or expand into new markets and distribute its goods ...
How does poor product experience affect franchisors?
For small to medium franchisors, controlling franchisees can be difficult . Distance can make monitoring difficult.
How does franchising work?
In franchising, you allow another firm (the franchisee/licensee) in your target foreign market to use your product branding, manufacturing processes, or other specialised information; they then leverage this to manufacture an identical product and sell it in that market. In exchange, you get paid in the form of franchising fees (and, of course, a sizeable cut of the profits).
What is the most common strategy for entry into overseas markets?
1. Exporting (Direct and Indirect) This is one of the oldest and most common strategies for entry into overseas markets. It is also one of the simplest; you produce goods or services in your home country and then sell them in another country. It's worth noting that exporting can be either direct or indirect.
What is franchising in business?
It generally involves one company giving permission for the use of a particular technology or production process to its partner – the licensee. Although franchising does often involve the licensed use of technology or patented methods, it goes much farther and is generally built upon a broader legal relationship. 3.
What is the difference between direct export and indirect export?
Direct exports give you more control, but at the cost of higher risk and resources. Indirect exporting, meanwhile, mitigates this to an extent, but with less control over your sales – and potentially even losses if you don't choose your intermediaries wisely. 2. Franchising and Licensing.
Why is expanding into new markets important?
Expanding into new markets puts extra demand on your existing production capabilities. If you do not have the resources to scale your business, licensing or franchising agreements offer you a workaround.
What is indirect export?
In indirect exporting, instead of keeping the above-mentioned activities in-house, you partner with other intermediary businesses that specialise in the export field. These could include export trading companies, export management companies, export merchants, purchasing agents, or confirming houses.
Why are foreign companies encouraged to partner with local businesses?
Foreign firms are thus "encouraged" to partner up with local businesses, investing money and providing technical knowledge and international connections in exchange for access to the local market. Ownership is usually shared between these two partners, often in ratios that are determined by the local regulations.
What is franchising in business?
Franchising refers to the licensing of small businesses to sell the merchandise and use the trademark of the franchisor, at the franchisee’s market. The franchisee pays royalty, management fee, and share of profits in return for using the brand’s reputation.
Why do franchisors conduct background checks?
They conduct thorough financial and background checks to ensure that they are getting in an agreement with a reliable franchisee. It can be difficult to sit in one country and get into agreement with willing franchise buyers from another. This is why the master franchising option is available to franchisors.
What is the job of a franchisee?
It is the franchisee’s job to find land, capital, staff, and licenses for the same. If the franchisee has to take a loan from the bank or other sources to meet these requirements, then the liability will lie solely on the shoulder of the franchisee. The debt of the franchisee cannot be shifted to the franchisor.
What is franchising company's most valuable asset?
However, a franchising company’s most valuable asset is its brand recognition . Without risking failure or investing in global marketing campaigns, they can increase sales in a market that they do not understand. Franchisors receive a royalty for lending their brand name and product to the franchisee!
How many McDonald's franchises are there?
There are more than 35,085 franchised locations globally, with 655 McDonald’s franchisees in New York City alone. The scope of franchising as a market entry strategy is quite evident in its success. While the initial stages where your franchise is ...
When can a company expand to a new market?
A company can proceed with expansion to a new market when they see potential profits. While the product or service line is established, you still need to carry out the physical and managerial building of the business from scratch.
Is franchising a reliable strategy?
Conclusion. Franchising is a reliable market entry strategy, but should only be selected if it meets your requirements and industry. While it offers less risk and workload, it also restricts control over your franchise.