International Franchising

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International franchising is often regarded as a low-risk foreign market entry strategy. Does this view fully reflect the attraction of international franchising as a market entry mode? International trade is booming and the world is shrinking rapidly due to faster communication, transportation, and financial flows. Today’s business environment is undergoing fundermental transformation as a result of globalization (Kotler & Armstrong, 2001). According to Hodgetts and Luthans (2003), “globalization is the production and distribution of products and services of a homogenous type and quality on a worldwide basis”. According to Root(1994, P.2) the new global economy has created business environment that require companies to look past the…show more content…
Finally, foreign investors must be interested in entering into franchise agreements. For well-established franchisors like McDonald’s, this is typically not a problem. Like licensing agreements, franchising agreements are spelt out in formal contracts, with a typical set of terms. For one thing, the franchisor generally receives a fixed payment plus a royalty based on the franchisee’s sales for the right to use the franchisor’s name, trademarks, formulas, and operating procedures. Further, the franchisee usually agrees to adhere to the franchisor’s requirements for appearance, financial reporting, and operating procedures. However, franchisors are likely to allow some degree of flexibility in order to meet local customs and tastes. In fact, as with other licensing agreements, one of the services the franchisee offers to the franchisor is knowledge about local market’s culture and customs. For example, McDonald’s restaurants sell beer in Germany and Switzerland and wine in France. Finally, the franchisor almost always helps the franchisee establish the new business; provides expertise, advertising, and a corporate image; and is usually able to negotiate favorable agreements with the suppliers. Numerous MNCs rely on franchising to internationalize their operations. Fast-food firms such as McDonald’s. Dunkin’ Donuts, Baskin-Robbins, Pizza Hut, and KFC have franchised restaurants worldwide. Benatton relies on franchised retail
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