The options available to international franchisors when seeking where to reassign their concern operations to are many. These agreements. both direct and indirect every bit good as the equity and non-equity exist in plentifulness. International franchising has been defined as manner of come ining a foreign market which involves a sort of relationship between the franchisor who is the entrant and the host state ass the entity in which the franchisor transfers a format or the concern bundle that it owns or developed under a contract to the entity ( Jentz. 2007. pp 33-45 ) .
The host state in this instance can be a franchisee. or act as a sub-franchisor such that it can reassign the format to another state once more. It could besides be one of the entities that franchisor has made equity investing in. Five manners of entry into a foreign market by franchisors have been identified. Master franchising. whose popularity is so high and which continues to turn is one of the manners of entry that has been identified peculiarly for franchisors that deal with services.
Research has confirmed maestro franchising to be one of the manners of entry to markets that was most prevailing. Harmonizing to the research study. most service franchisors ( speedy service and restaurant franchisors ) sought merely maestro franchisees in their international operations ( Jentz. 2007. pp 13-45 ) . Master international franchising can be described as a manner of entry which in malice of being alone is portions some of the features of other manners of international entry such as exporting for production houses.
Master international franchising is advantageous in that it a manner of entry into a foreign market that has the lowest hazard in footings of fundss and really limited control hence low committedness for companies that offer services. It has bee suggested that research workers need to follow and use the theories of entry manners used by makers to the service sector. The difference in the entry manners used by makers and those 1s chosen by service suppliers is that in the service sector ingestion and production are inseparable while in fabrication they are different.
The inseparability of the two procedures in most service concerns makes it hard for services to be exported in the literal/traditional sense ( Jentz. 2007. pp 55-65 ) . Franchising is associated with services that are considered to be ‘soft’ such as hotels. eating houses and retailing which require uninterrupted production and ingestion. Master international franchising for such services can hence be considered as a manner of entry that is tantamount to exporting.
The singularity of maestro international franchising is because of the parties involved in the concatenation of operation ( Jentz. 2007. pp 55-99 ) . Unlike exporting. it involves the maestro and the sub-franchisees who are the pull offing agents reassigning valuable assets though intangible that include the trade name and the concern format of the franchisor who is the proprietor to the agents. hence doing the maestro posses the accomplishments and powers of a franchisor ( Jentz. 2007. pp 55-99 ) .
Master international franchising can hence be summarized as a an understanding that is contractual between the franchisor and sub-franchisor that is independently owned to develop a specific figure of franchisees in a certain state in exchange for the sole right to utilize the concern trade name or format for a specified period of clip. Because of the contractual nature of the understanding. maestro international franchising requires really small investing on the portion of the franchisor as most of the domestic responsibilities are externalized and delegated to the agent referred to as the ‘master’ operating in the mark market.
Because of the mentioned advantages. maestro international franchising has become really popular. The growing in popularity of maestro international franchising as a manner of entry to a foreign market is nevertheless non merely because of these advantages but besides due to some market conditions that favour it. The environmental factors that impact maestro international franchising can be divided into economic. political or legal and societal dimensions. Harmonizing to literature. the economic environment of the mark market has a really great impact on the franchisor’s manner of entry.
Economic environment is argued to hold three variables that influence manner of entry. These variables include market size. demand variableness and the strength of competition. Market size is argued to be the ultimate determiner of market entry. If market for a peculiar service or merchandise does non be in a state. a franchisor can non see aiming such a state for market enlargement ( Jentz. 2007. pp 55-99 ) . Evaluation of a state for possible market is nevertheless industry particular.
While most restaurant services such as McDonald’s screen for difficult currency and societal categories where they prefer states that have most citizens in the in-between category bracket. hotel services use the ratio of GDP to that one of foreign direct investing to choose possible markets. Franchisors have been urged to measure economic environmental factors such as GDP growing and per capita. urbanization degree. in-between category extent. population growing and engagement of adult females in labor when measuring the economic potency of a state being targeted as a host.
States that have high economic possible favor internalisation due to their improved environmental attraction. The greater the economic market potency of a state. the more likely a franchisor will prefer to internalize their operations therefore will non less likely usage a maestro international franchising for market enlargement ( Jentz. 2007. pp 55-99 ) . The nature of competition affects the manner of entry the franchisor chooses to come in a market into a foreign market. Markets that are extremely competitory for illustration airs as barriers to entry.
Competitive markets imply that the franchisor will utilize a batch of resources to keep a competitory advantage over their challengers. In order to avoid such costs that can be viewed as unneeded. a franchisor will most likely usage master international franchising to spread out in a market that is characterized by great competitory strength ( Jentz. 2007. pp 67-99 ) . Variability in demand on the other manus makes a state less attractive and accordingly makes the franchisor opt fore a method that is characterized by less hazards and limited control. A franchisor can ne’er put on the line puting in a market whose demand is unsure.
Most emerging markets have high demands for services they are non familiar with particularly in the engineering sector. A franchisor is hence more likely to utilize chief international franchising in a state that is characterized great demand variableness for enlargement. A nation’s credence of franchising theoretical account is cited as an of import requirement for franchising. Acceptance as a factor is cited as of import factor in guaranting the degree of investor’s assurance on this manner of concern which greatly affect the potency that it has for bring forthing value ( Jentz. 2007. pp 55-103 ) .
The degree of development or the phase of development that a state is in is besides cited as being of import in finding the perceptual experience that is developed of franchising. Underdeveloped or developing states are cited as holding a hapless perceptual experience of franchising compared to developed states. Generally states where franchising has been developed for considerable clip periods display high degrees of credence which leads to a status that is suited for development of franchising as an attack to value coevals ( Jentz. 2007. pp 55-103 ) .
Other factors that are oriented in this societal kingdom include cultural difference between place and hosts market and the degree of maleness and individuality that is displayed by a state. State hazard as a factor is greatly influential on the likeliness of one franchising in any given state. High degrees of hazard in a state that one seeks require expertness and command in franchising to be able to bring forth value. This is a legal or political variable that greatly affect the suitableness of a state for franchising.
States whose political environment is supportive of corruptness present an environment where franchisors are less likely to utilize their accomplishments ( Jentz. 2007. pp 55-103 ) . Another factor pointed as being influential on franchising is the degree of corruptness and authorities committedness to turn toing this frailty. From the literature. maestro international franchising is argued to be one of the fastest turning schemes used by international franchisors to spread out in foreign states.
This method has proved to be attractive to the international franchisors because of the fact that the fiscal hazards involved are minimum and that it is a faster manner to acquire to the market. The conditions that favour maestro franchising have been studied and it has been proposed that they include low degrees of corruptness within the economic system of the state are low. and when the strength in competition. variableness in demand. social maleness and individuality. franchise cognition. geographical distance. degree of legal protection. the country’s hazard and cultural distance of the state are high.