Page 102 - DMGT545_INTERNATIONAL_BUSINESS

Unit 6: Modes of Entering International Business

5. It adjusted the general export promotion programme to suit its own particular needs notes
and characteristics.
6. It consciously guarded against the creation of an unwieldy bureaucratic structure.

Source: http://www.fao.org/docrep/W5973E/w5973e0b.htm
6.2.3 franchising

Franchising is basically a specialized form of licensing in which the franchiser not only sells
intangible property (normally a trademark) to the franchisee, but also insists that the franchisee
agree to abide by strict rules as how it does business. The franchiser will also often assist the
franchisee to run the business on an ongoing basis.
While licensing works well for manufacturers, franchising is often suited to the global expansion
efforts of service and retailing.

The franchisor provided the following services to the franchisee:
1. Trade marks,
2. Operating system,
3. Product reputations,
4. Continuous support systems like advertising, employee training, reservation services,
quality assurance programmes etc.

advantages of franchising

Franchising has much the same advantages as licensing. The franchisee bears most of the costs
and risks of establishing foreign locations; the franchiser has to expend only the resource to
recruit, train, and support franchisees. Thus using a franchising strategy, a service firm can build
a global presence quickly and at a relatively low cost and risk, as McDonald’s has.
Disadvantages of franchising

The big problem a franchiser faces is maintaining quality control; foreign franchisees do not
always exhibit strong commitment to consistency and standardization, perhaps because the local
culture does not stress or put much value on the same kinds of quality concerns.

Example: McDonald’s, Tricon Global Restaurants (the parent of Pizza Hut, Kentucky
Fried Chicken, and Taco Bell), and Hilton Hotels have all used franchising to build a presence in
foreign markets.

self assessment

Fill in the blanks:
1. Exporting may help a firm achieve …………………. and ………………….
2. …………………. projects are a way of earning great economic returns from the assets.
3. The optimal entry mode for the firms depends to some degree on the nature of their
………………….
4. …………………. barriers can make exporting uneconomical.
5. …………………. is often used when a firm wishes to participate in a foreign market but is
prohibited from doing so by barriers to investment.

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