Modes of Entry into International Markets

Modes of Entry into International Markets

Franchising

A form of licensing
􀂃 a contractual arrangement in which a firm (the franchiser) sells the right to use its intellectual property
(technology, patents, work methods, brand names, trade marks, copyrights, and company name) to a
firm (the franchisee) in return for fees
􀂃 The franchiser provides significant assistance and/or exercises significant control over the franchisee’s
method of operation.
Types of franchise agreements:
• Product/trade name franchises
– Distribution of product in a specified territory or location with the use of manufacturer’s trademark
– Car dealerships, petrol service stations, soft-drink bottles
• Business format franchises
– Incorporates the licensing of a trademark for business in a specified territory along with an entire
system for conducting a business
– These now account for nearly 75% of all franchise businesses, examples are McDonalds, KFC,
Bodyshop, Giordano concept shops etc.
Single-unit franchising
– The franchiser grants to an individual franchisee the right to operate a single unit within a defined
territory.
• Multi-unit franchising
– Involves granting the franchisee the right to operate more than one franchise from the same franchiser
• Conversion franchising
– Acquiring and converting existing business into a franchise
• International franchising commonly involves “Master Franchising” and joint-ventures
• Creative franchising can include many things ranging from money-back guarantees, and stock ownership,
to the use of sophisticated management techniques
Key considerations in franchising:
• Franchising package must be sound and cohesive, adapted to environment of target country
• Franchiser must be able to provide value to franchisees on continuous basis
• Adequate financing
• Careful selection of franchisees
• Building strong cordial relationships with franchisees
• Providing continuing support to franchisees
• Compliance with foreign regulations