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54Recent trends in franchising market in modern globalized economy Saribekjan K. (Russian Federation)
Специфика развития бизнеса по модели франчайзинга в условиях глобализации
современной экономики Сарибекян К. А. (Российская Федерация)
Сарибекян Карен Альбертович /Saribekjan Karen - бакалавр экономики, магистрант, кафедра финансового менеджмента,
Финансовый университет при Правительстве Российской Федерации, г. Москва
Аннотация: в данной статье рассмотрены наиболее существенные тенденции в развитии
международного франчайзинга. Описываются причины, по которым путь развития бизнеса по модели франчайзинга стал одной из самых эффективных стратегий для многих мировых брендов.
Abstract: this article examines the most recent trends in the global franchising market. It is explained why franchising has become one of the most successful business formula for many different brands for quite a long time already.
Keywords: franchising, international business, globalization of world economy, marketing.
Ключевые слова: франчайзинг, международный бизнес, глобализация мировой экономики, маркетинг.
In recent decades, the number of franchises in the world has increased considerably. It is expected that franchising delivers a better financial performance, a more supportive working environment and higher survival chances than alternative organizational forms.
In the literature certain benefits of franchising are pointed out, as well as its limitations. From the franchisor perspective, franchising has the benefit of fast possibility for the business expansion and thus quick use of economies of scale. Of course, new entrepreneurs could be facing higher initial costs of production, which, however, could be quickly paid off by reaching minimum efficiency point through franchising.
As globalization plays an increasingly prominent role in the world economy, businesses are actively seeking to expand their operations abroad. The rise of franchise operations in countries such as China and India is sending a strong signal to long-established franchises and newly-established franchises alike that international franchising is here to stay. As franchise sectors mature in the home market, franchisors who wish to grow must look to international markets. Market saturation is increasingly becoming the case for franchisors in the US, Canada, Western Europe and Japan. For example, US franchising revenues have grown to $1 trillion or about 50 percent of all retail trade. By way of contrast, China, with about one-quarter of the world’s population, has a soaring middle-class and is considered the most under-retailed country in the world. Eastern Europe, the Middle-East and other parts of Asia are also significant regions for franchising growth. In fact, the growth potential for franchising worldwide is considered by some to be exponential [1].
Fifteen years ago, relatively few franchisors were operating internationally, and the ones that had gone international were typically the very large ones. By early 2011, 32 percent of the franchise units operated by the top 200 franchisors in the United States were located outside of the U. S. That percentage represents a 33 percent jump in the number of international units operated by those franchisors over the previous 10 years. In addition to the United States, franchises in countries such as England, Australia, and Canada have found a high level of success in spreading their business concepts around the world. And additional players in places like France, Spain, and Germany are getting into the international franchising game, and experiencing marked success too.
When embarking on an international franchising program, leaders of growing companies must always consider the following main barriers [2]:
• Marketing barriers. These types of barriers most frequently go to the deepest cultural levels. For example, whereas many overseas markets have developed a taste for “fast food” burgers and hot dogs, differences in culture may dictate that the speed aspect is less important.
• Government barriers. The foreign government may or may not be receptive to foreign investment in general or to franchising in particular. A given country’s past history of expropriation, government restrictions, and limitations on currency repatriation may all prove to be decisive factors in determining whether the cost of market penetration is worth the benefits to be potentially derived.
• Local laws. Domestic legislation needs to be examined as well for issues arising under labor law, immigration law, customs law, tax law, agency law, and other producer/distributor liability provisions. The need for import licenses and work permits will also need to be considered.
• Sources of financing. The territory chosen may affect the ability to maintain and sustain financing for the undertaking, as well as affecting the ability to receive risk insurance, both publicly and privately. The franchisees in the targeted markets must have access to the financing necessary to establish single-unit franchises.
• Expatriation of profits. This frequently can be the most decisive factor in deciding whether to enter a given market. If a franchisor is restricted in the ability to convert and remove earned fees and royalties from a foreign jurisdiction, then the incentive for entering the market may be completely eliminated.
• Taxes. The presence or absence of a tax treaty between the franchisor’s home country and the targeted foreign market can raise numerous issues and may well affect the business format chosen.
Franchisors look at key markers such as what kind of demand exists for their products and services in the new international market(s), the initial cost of entry, sourcing supplies and related vendor issues, and whether or not it makes sense to open company and franchise units in these new territories. Franchisors are going to evaluate a country's GDP per capita, general population statistics, and the overall state of the country's economy. Another significant factor affecting international expansion is legislation that often varies from country to country on small business operations and franchise licensing. It can be complicated and requires research [3].
Interactions between the franchisor and franchisee are particularly important, and in choosing a franchisee, the franchisor must consider how their partner will fit into the overall strategy of the organization, how that particular country’s market will perform and whether or not the franchisee is qualified to become a franchise partner [4].
Franchise representatives need to visit the countries they are considering moving into and devote time and resources to studying these cultures very carefully. One of the first questions to consider is time of entry. One school of thought says not to be the first to the market but a close second. This way another franchisor, essentially, invests in the market research for all competitors. If the product or service flies, and the market are proved to be viable and economically attractive, then other brands, and concepts, can begin to move in.
One of the most critical components of successful international franchise expansion is finding the right partners. This is a key ingredient to long-term success and profitability for the franchise brand. There's likely to be cultural barriers, political barriers, legal barriers, language barriers and other factors. That's why it's important to identify key people on the ground that know and understand all of these issues thoroughly. Typically, a master franchisee model is employed. The franchisor contracts with a person or entity to help identify and provide services to franchisees in a specified territory (anything from a whole country to a region to a city). The master franchisee typically pays the franchisor a significant initial fee for the rights to develop the territory and then retains a portion of the initial fees and royalty fees paid over time by the individual franchisees in the territory. The franchise relationship between a franchisor and a franchisee is characterized by mutual interdependence; the franchisor relies upon its franchisee to per-form at expected levels and within specified guidelines, whereas the franchisee re-lies upon its franchisor for support.
Such mutually interdependent relationships, of which franchise relationships are a specific subset, have been widely cited as relying on mutual trust to be successful. However, franchise relationships are characterized by asymmetrical control; by virtue of the franchise contract the franchisor generally has more power than its individual franchisees and this may make the franchisee vulnerable to opportunistic behaviors by the franchisor. A lack of trust among franchisees in their franchisor and franchise system may lead to various kinds of undesired franchisee behavior, such as diminished efforts to comply with franchise regulations or franchisees leaving the franchise system. Such franchisee behaviors will lead to all kinds of problems, such as diminished system sales, problematic franchisee recruitment, and ultimately decreasing and/or stagnating franchise system profitability. In sum, franchisors have a large economic interest in maintaining and/or creating franchisees’ trust in them, since franchisees form an important ingredient of their franchise systems’ success [5].
References
1. Richard C. Hoffman and John F. Preble. Global franchising: current status and future challenges, Journal of Services Marketing, Vol. 18. Issue 2, pp. 101-113.
2. Andrew J. Sherman. Preparing to be global franchisor, The Journal of Corporate Accounting & Finance September/October 2012.
3. Karlijn J. Nijmeijer et al. Making Franchising Work: A Framework Based on a Systematic Review, International Journal of Management Reviews, Vol. 16, 62-83 (2014).
4. Lafontaine, Francine et al. Financial constraints and moral hazard: The case of Franchising, DICE Discussion Paper, No. 114 (2013).
5. Evelien P. M. Croonen & Maryse J. Brand. What Makes Franchisees Trust Their Franchisors? Paper for the EMNET 2011 conference.
