During their lifecycle, companies often plan to expand into a foreign market. One of the most difficult decisions they have to make beforehand, in order to do so suc-cessfully, is the choice of the mode of entry. There are many opportunities that have to be evaluated differently from case to case which can have a huge impact on the performance of the company within the new market. Franchising is a com-mon strategy for entering and growing in markets.
This seminar work is intended to evaluate franchising as a mode of entry. It will outline advantages and disadvantages and aims to give guidelines for companies, with regard to creating and managing a franchise system. Therefore McDonald’s will be highlighted in order to show how this can be possible. Moreover, this seminar work will make clear in which cases franchising is not the right mode when entering into a new market. Therefore the whole topic will be considered before a more detailed discussion of the fast food sector.
Table of Contents
1 Introduction
1.1 Subject
1.2 Objectives
1.3 Structure
2 Franchising in general
2.1 Concepts of franchising:
3 Reasons for introducing a franchising system
3.1 Advantages
3.2 Disadvantages
4 Practical examination of franchising by McDonald’s
5 Conclusion
Objectives and Topics
This paper evaluates franchising as a strategic model for entering foreign markets, focusing on the balance between standardization and local adaptation. It aims to provide guidelines for managing franchise systems by analyzing the practical success and challenges faced by McDonald's in its global expansion.
- Fundamentals of franchising business models
- Strategic advantages and potential drawbacks of franchise systems
- The impact of international market entry strategies
- Standardization versus cultural adaptation in global business
- Case study analysis of McDonald’s international growth
Excerpt from the Book
Practical examination of franchising by McDonald’s
In Europe McDonald’s is divided into the key regions of south, north and west which offers the chance to focus on a common administration and benefit from the subsequent arising synergy effects. Expansion started with restaurants ran by the McDonald’s company in the main cities of Europe. This was followed by thousands of restaurants which were opened on the basis of franchising. In 2013 McDonald’s was represented in 120 countries. It only took an astounding 27 years from the company’s founding to the start of globalization. Today’s major markets for McDonald’s are Japan, Canada, Great Britain, Germany, France and Australia – these being countries first entered.
Today, 80% of the company’s turnover is generated in these 6 countries. As pioneer in the franchising field, McDonald’s continuously proves to be successful in the market. This is evidence by the fact that McDonald’s restaurants are located in twice as many countries as Burger King. Furthermore smaller and uneconomical countries were not entered. For instance Islamic countries have notably far less American fast-food restaurants than other cultural regions of the world. Although franchising is based on specific standards which can readily be adjusted to various countries, a totally different cultural background can create problems which may prove to be very difficult to overcome. In 2002 McDonald’s for the first time suffered significant losses, consequently compelling them to stop expansion and close numerous restaurants. Since then and with the passing of time expansion once again resumed particularly in Russia and China. The number of newly opened restaurant corresponds to the time McDonald’s has existed in the market. Countries with high potential and growing markets were wisely entered early in the history of the company. Despite this, there is evidence to suggest that there is still room for growth.
Summary of Chapters
1 Introduction: This chapter defines the subject of market entry strategies, outlines the research objectives, and describes the structure of the seminar work.
2 Franchising in general: This section provides a legal definition of franchising, explores the role of contract duration, and discusses the relationship between franchiser and franchisee.
2.1 Concepts of franchising:: This chapter analyzes various franchising models, including single, multi, and master franchising, and their implications for growth and management.
3 Reasons for introducing a franchising system: This chapter explores the economic motivations behind adopting a franchise structure, focusing on shared labor and knowledge transfer.
3.1 Advantages: This section highlights how standardization and network cooperation can create competitive advantages in costs and brand image.
3.2 Disadvantages: This chapter addresses the challenges of franchisee autonomy, the difficulties of finding suitable partners, and the risks of quality degradation.
4 Practical examination of franchising by McDonald’s: This chapter examines the historical global expansion of McDonald’s and the balance between standardized processes and local cultural requirements.
5 Conclusion: The final chapter summarizes the benefits and risks of the franchising model and provides a perspective on the future challenges for McDonald’s.
Keywords
Franchising, Market Entry, Strategic Management, McDonald's, Globalization, Standardization, International Expansion, Business Model, Franchisee, Franchiser, Competitive Advantage, Synergy Effects, Brand Management, Cross-Cultural Management, Market Growth
Frequently Asked Questions
What is the core focus of this paper?
The paper evaluates franchising as a specific mode of entry for companies looking to expand into foreign markets, using McDonald's as a primary case study.
What are the central themes discussed in this work?
Central themes include the economic rationale for franchising, the trade-offs between centralized control and local flexibility, and the operational challenges of managing international franchise networks.
What is the primary research objective?
The primary goal is to outline the advantages and disadvantages of franchising to provide strategic guidelines for companies creating or managing a franchise system.
Which scientific method is applied here?
The work utilizes a literature-based analysis of franchising concepts combined with a practical case study examination of McDonald's expansion strategies.
What topics are covered in the main body?
The main body covers the definition and forms of franchising, the strategic reasons for adopting this system, an assessment of pros and cons, and a detailed look at McDonald's growth history.
How would you characterize this work through keywords?
The work is characterized by terms such as International Expansion, Strategic Management, Standardization, and Franchise Systems.
How does McDonald’s balance standardization with cultural differences?
McDonald's employs general global guidelines to ensure brand consistency, while allowing for local adaptations to accommodate specific cultural or religious needs, such as modifying menu offerings in India.
What is the main conclusion regarding the future of McDonald’s?
The author concludes that while McDonald's has successfully globalized through franchising, future success depends on the company's ability to adapt to health-conscious consumer trends and the ability to maintain quality across diverse regions.
Why is the "waterfall strategy" important for McDonald’s?
The waterfall strategy allows McDonald's to enter foreign markets step-by-step, enabling them to adjust resources to demand while keeping initial investments and risks lower.
- Quote paper
- Charicea Kaspers (Author), 2017, Franchising as a model of entry into foreign markets. An evaluation, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/442809
