In 1991 the Indian government began trade liberalisation to avoid an impending international default and a failing economy (Ghosh, 2004). This change in policy allowed KFC to consider entry when before it had not been possible. Before the deregulation, India had restrictions on every stage of developing an international business in India, from entry modes, to capacity expansion, to choice of technology and even output and import content restrictions (Pederson, 2000). Due to the political and economical instability of India, franchising was proven to be the most attractive mode of entry for KFC. As opposed to Foreign Direct Investment, franchising requires much less funds to begin trading, and there is less risk losing this investment to the instability of the country (Hill, 2007). Thus, KFC became the first international fast food franchise to have operations in India (Pal, 2006).
Franchising is very similar to licensing with only difference being that franchising takes place for a longer period of time and the franchisee agrees to abide by the rules and regulations set by the franchisor as compared to licensing. Franchising, apart from being a preferred mode of expansion for many brands, also opens up an all-new world of business opportunities for millions of entrepreneurs across the world. There are over 16,000 franchising companies with sales worth $2 trillion around the world and more than 1.5 million franchisees employing over 20 million people directly (Ravikumar, 2007).
KFC chose to franchise and not to, for instance, create a joint venture in India because franchising facilitates the generation of revenue for the franchisor from the franchisee whereas putting up a joint venture would cause KFC to invest more money in the Indian economy and then gain the revenue. This lower capital requirement is the main reason why KFC chose franchising. Franchising provides a favourable model both for U.S. and Indian business interests to expand and establish their brands without having to risk large sums of money because there are many potential franchisees in India who have the capacity to finance the business or to expand the current business (Pal, 2006).
According to Castrogiovanni & Justis (1998, p.2) franchising is the best mode of entry for the Quick Service Restaurant market. It differs to licensing in...