Effective International Marketing in Globally Franchising Firms.

Topics: Marketing, Franchising, Franchise Pages: 9 (3108 words) Published: July 22, 2010

The decision to take a company outside the the company’s origin involves careful analysis of risk and benefit factors, consideration and selection of potential markets, planned market entry, and development of market penetration over time.  While this can be done through a number of strategies, franchising is a growing means of achieving international presence.  DECIDING TO FRANCHISE INTERNATIONALLY

With the increase in international franchising and its impact on marketing, a number of studies have been conducted on various related aspects.  One first consideration in literature is what leads to the decision to go international, and how this stimulates marketing within the firm.  It is first helpful to consider the relationship between parent companies and their subsidiaries, whether franchises, partnerships, or company-owned outlets.  Structurally, large multinationals such as McDonald’s and Benetton are “better viewed as inter-organisational networks than monolithic hierarchies,” because each subsidiary can take actions that affect the company as a whole (Birkinshaw 2000, 2).  Corporate structure is determined by interplay between parent and subsidiary, with both responding to and driving needed changes in the business environment (Birkinshaw 2000, 4).  Sometimes it will be the subsidiary that pursues markets, making a “proactive and deliberate pursuit of a new business opportunity” in order to “expand its scope of responsibility” (Birkinshaw 2000, 2). Eroglu (1992) studied determinants in firms’ decisions to franchise internationally.  He found two sets of “perceptual variables – perceived risks and perceived benefits – ” determine a company’s decision (19).  When the perceived benefits outweighed the perceived risks, the company would proceed with expansion.  Cost/benefit analysis in one common method for measuring benefits versus risk, but again, is filtered through the perceptual opinions of decision makers.  It is therefore to consider the variables as perceived benefits and perceived risks (Eroglu 1992, 23). In addition to push and pull factors, there are two theories in the study of franchising that explain the decision to move into international locations.  Both address one of the most debated topics in franchising research: why the parent company would want to franchise, when company-owned units provide a higher rate of return (Elango and Fried 1997, 69).  Once a business achieves a certain size, it is more profitable to the parent company if wholly owned.  For example, a typical franchisee may make a forty percent margin, and pay half of that to the parent company.  “With the right economies of scale, the franchisor could recoup more of that profit margin by owning the company outright” (Hoar 2003, 78). 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...
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