Expansion Srategies

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4. Alternative International Expansion Strategies
A. Nonequity Mode:
A mode of entry that tends to reflect relatively smaller commitments to overseas markets (Peng, 2011). i. FRANCHISING
1. PROS
IHOP can take advantage of low development cost and very low risk in overseas expansion. It makes senses financially in the sense that the franchisor can charge an initial fee to the overseas franchisee. Franchising in effect provides an almost cost free expansion since the original business receives royalties and a constant stream of income from the franchisee. IHOP can benefit from linkage ties the local franchisee already has set up. Linkage that has been forged between the franchisee and other strategic industry partners such as farmers, specialist, retailers and wholesalers is a benefit because it ties businesses within a local economy and appeals to the local customer bases. IHOP would only have to worry about approving these contracts with these local companies to ensure they met the standards they desired. In turn the franchisee and these companies would be required to make a uniform product to represent IHOP in South Africa. IHOP would also have the luxury of not having capital tied up in foreign operations and options to buy into its partner exist or provision to take royalties in stock. IHOP would also gain immediate market share by having multiple locations open with minimal cost. 2. CONS

IHOP has many challenges franchising in South Africa. The restaurant industry is already

dominated by regional and global franchises. South Africa has an extensive franchise restaurant chain that serve wide variety of meals (e.g. fried chicken, hamburgers, stakes, sandwiches, pizza, seafood, desserts etc.) About 90 percent of franchises in South Africa have been locally developed while 10 percent were developed internationally. Generally, the turnover for the franchise sector in South Africa is estimated at 134.7 billion. Approximately 165 franchises and...
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