Answer to Question 1
C
Answer to Question 2
Franchising is a contractual entry mode in which one company (the franchiser) supplies another (the franchisee) with intangible property and other assistance over an extended period. Franchisers typically receive compensation as flat fees, royalty payments, or both. The most popular franchises are those with widely recognized brand names, such as Mercedes, McDonald's, and Starbucks. In fact, the brand name or trademark of a company is normally the single most important item desired by the franchisee. This is why smaller companies with lesser known brand names and trademarks have greater difficulty locating interested franchisees.
Franchising differs from licensing in several ways. First, franchising gives a company greater control over the sale of its product in a target market. Franchisees must often meet strict guidelines on product quality, day-to-day management duties, and marketing promotions. Second, although licensing is fairly common in manufacturing industries, franchising is primarily used in service industries such as auto dealerships, entertainment, lodging, restaurants, and business services. Third, although licensing normally involves a one-time transfer of property, franchising requires ongoing assistance from the franchiser. In addition to the initial transfer of property, franchisers typically offer startup capital, management training, location advice, and advertising assistance to their franchisees.
Some examples of the kinds of companies involved in international franchising include:
Ozemail (Australia) awarded Magictel (Hong Kong) a franchise to operate its Internet phone and fax service in Hong Kong.
Jean-Louis David (France) awarded franchises to more than 200 hairdressing salons in Italy.
Brooks Brothers (United States) awarded Dickson Concepts (Hong Kong) a franchise to operate Brooks Brothers stores across Southeast Asia.
Advantages of franchising-There are several important advantages of franchising. First, franchisers can use franchising as a low-cost, low-risk entry mode into new markets. Companies following global strategies rely on consistent products and common themes in worldwide markets. Franchising allows them to maintain consistency by replicating the processes for standardized products in each target market. Many franchisers, however, will make small modifications in products and promotional messages when marketing specifically to local buyers.
Second, franchising is an entry mode that allows for rapid geographic expansion. Firms often gain a competitive advantage by being first in seizing a market opportunity. For example, Microtel Inns & Suites of Atlanta, Georgia, is using franchising to fuel its international expansion. Microtel is boldly entering Argentina and Uruguay and eyeing opportunities in Brazil and Western Europe. Rooms cost around 75 per night and target business travelers who cannot afford 200 per night.
Finally, franchisers can benefit from the cultural knowledge and know-how of local managers. This helps lower the risk of business failure in unfamiliar markets and can create a competitive advantage.
Disadvantages of franchising-Franchising can also pose problems for both franchisers and franchisees. First, franchisers may find it cumbersome to manage a large number of franchisees in a variety of national markets. A major concern is that product quality and promotional messages among franchisees will not be consistent from one market to another. One way to ensure greater control is by establishing in each market a so-called master franchisee, which is responsible for monitoring the operations of individual franchisees.
Second, franchisees can experience a loss of organizational flexibility in franchising agreements. Franchise contracts can restrict their strategic and tactical options, and they may even be forced to promote products owned by the franchiser's other divisions. For years PepsiCo owned the well-known restaurant chains Pizza Hut, Taco Bell, and KFC. As part of their franchise agreements with PepsiCo, restaurant owners were required to sell only PepsiCo beverages to their customers. Many franchisees worldwide were displeased with such restrictions on their product offerings and were relieved when PepsiCo spun off the restaurant chains.
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