Franchising: it is a specialized form of licensing in which the franchisor nor only sells an independent franchisee the use of the intangible property (usually a trademark) essential to the franchisee’ business but also operationally assists the business on a continuing basis, such as through sales promotion and training. (Daniels, 2004: p. 498).
Franchise format: it comprises a contractual relationship between the franchisor and the franchisee, both of which are legally independent businesses. According to Cox and Mason, the franchise format can be group into four components:
- Product/service deliverables: these are the unique features of the format which make up the ‘concept’ of the business (such as a unique menu in a fast food franchise) and give the format its competitive niche in the marketplace.
- Benefit communicators: these are the intangible and unobservable benefits for the consumer, such as quality, reliability and professionalism which create the confidence in the product/service (e.g. clean uniforms in fast food outlets).
- these are visual and auditory elements that link the individual unit within a system or chain (e.g. trade name or trademark, colour schemes, de´cor, architectural features, uniforms).
- Format facilitators: these are the policies and procedures which enable the format to function efficiently at both the individual unit level as well as at the system level (i.e. the managerial and operational infrastructure necessary for format implementation, covering store-level elements such as specification of equipment, layout and design plan, plus the system-level elements like financial reporting systems, royalty payment methods and training procedures). Format facilitators are largely invisible to the consumer except for their indirect effect on the other components, but are critical because they comprise the management and operational infrastructure for the entire franchise system.
2. Question
Why are franchises becoming in one of the most important entry modes to international markets?
Nowadays, more and more companies want to spread their operations to international markets as a form for reach more profits and more market share because of the high level of competition in each economic sector. For this reason, companies implement the strategy that better adapts to the company’s objectives and structure. So, franchises are a good option when a company wants to have an equilibrated relation between control risk and returns and it is a powerful business model around the world. As Hoskinsson, et al. (2008) explained, franchising and other international cooperative strategies allow geographic diversification and promote firm growth of the company because sometimes they can be more attractive than mergers or acquisitions because they require fewer resources commitments and permit greater strategic flexibility. So, statistics show the great growth of franchising strategies: for example, in 2005 the International Franchising Association (IFA) indicated that inside the United States there were 909,253 franchising establishments and these establishments amounted to 3.3 percent of all business establishments in the United States. Franchised businesses provided 11.0 million jobs, met a $278.6 billion payroll, and produced $880.9 billion of output. the growth of franchising internationally has maintained a similar trend to that of the United States.
On the other hand, Franchising is becoming is a good strategy for small and medium enterprises. Although there is an implicit presumption that international expansion equals a large franchise network which equals large budgets (Simpkin, 2010), small and medium size companies are accessing new markets because of conditions such us saturation of home market and good growth expectations abroad. However, expansion for SMZE could be more difficult because they have fewer resources and generally less experience and information about global markets. So, according to Simpkin, (2010) “The challenge then for an small to medium-sized franchise network is achieving this expansion in a structured way, on a limited budget and without losing control of the business both at home and in the target market”.
In order to reach expansion in this structured way, it’s important to consider that success in a foreign market must be supported in the pursuit and analysis of the market conditions and differences from home country because, as Asbill and Goldman (200) mentioned, a franchise system’s success in one community, state, region or country is not necessarily an indicator of success elsewhere because of differences on language, demographics, politics, legal system, and culture, as well as distances from franchises. So, analysis of these aspects could help a (large, medium or small) company to make a decision about the franchise format and the local strategic (adaptation or standardization).
Finally, another reason for growth of franchising model is that it offers different alternatives and modes that can be more appropriate for some companies: that is, franchising can be not only a business format (with a complete method to conduct business, trademark, infrastructure) but also it can be a “product distribution franchise” that just establish a supplier-dealer relationship, for example, Pepsi or Exxon. (IFA, 2010).
3. Point of view
I think that franchising is a very interesting business model that benefits not only franchisor companies but also franchisee companies that have opportunities of growing with fewer risks than if they invest in new business because of the “Good Will” of franchisor companies that supported cooperative and licensing strategies. In Colombia, for example, franchises are increasingly becoming in a successful model for all type of companies inside the country and, in some cases, in foreign markets. So, Colombian companies are achieving more participation in recognized markets of North America or Europe. Maybe, the most important example is “Juan Valdez Café” that, with a combined strategic between exports to retailers abroad and franchises for coffee stores, is now a recognized brand in all America’s continent. In my opinion, Juan Valdez expansion is an example of how a company can use its brand as a key factor to reach more market participation with less risk.
Besides, I think that the most important thing when a company is thinking in a franchising as entry mode is to try to keep and equilibrated relationship between standardization and adaptation, because in some cases or economic sectors (as Food) adaptation should be a fundamental characteristic of the franchise format, but there are other characteristics that can not be different in each franchise, such us service, quality and, maybe, design in the location. So, both franchisor and franchisee need clarity about the way in which 4 component of Franchise format will be organized in order to protect brand and therefore the aims of companies.
BIBLIOGRAPHY
Alon, I. (2006). Service Franchising: a global perspective. [Online]. Available at: http://books.google.com/books?id=tyeA7U8m11UC&pg=PP13&dq=franchising+model&hl=en&ei=1BywTMvoOIaKlwee1OyEDw&sa=X&oi=book_result&ct=result&resnum=3&ved=0CDYQ6AEwAg#v=onepage&q=franchising%20model&f=false
Asbill, RM. and Goldman, SM. (2001). Fundamentals of international franchising. [Online] available at:
Cox, J. and Manson, C.(2007) Standardization vs adaptation: Geographical pressures to deviate from franchise formats. Retrieved from the EBSCO host database: http://search.ebscohost.com/
Daniel, J. (2010).International Business: Environments and operations. Pearson. Pag704.
Hoskinsson, RE. et al. (2008). Competing by advantage. [online]. Available at: http://books.google.com/books?id=ptLXkW9lT2gC&pg=PT218&dq=franchise++international+strategies&hl=en&ei=OiSwTMnlKsOblgfC-sz3BQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCoQ6AEwADgK#v=onepage&q=franchise%20%20international%20strategies&f=false
IFA (2010). An Introduction to franchising. [Online]. Available at: http://www.franchise.org/uploadedFiles/Franchise_Industry/Resources/Education_Foundation/Intro%20to%20Franchising%20Student%20Guide.pdf
________(2005). Economic impact of franchised business. [Online]. Available at: http://www.franchise.org/uploadedFiles/Franchisors/Other_Content/economic_impact_documents/EconImpact_Vol2_HiLights.pdf
Simpkin, A. (March, 2010). Successful international expansion for small to medium sized franchise network. [Online]. available at:
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