FRANCHISING is a business system in which a company (or franchisor) sells an individual (or franchisee) the right to operate a business using the franchisor´s established system or format.
As part of the franchise agreement the franchisee pays an initial sum of money, a franchise fee or front end fee to the franchisor and agrees to pay a royalty or management service fee for continuing advice and assistance, which is usually calculated as a percentage of annual turnover. The franchisee may also pay an advertising fee to contribute to the franchisor´s annual advertising and marketing costs. The franchisee also has to find the capital to open the business. The franchisor provides an operations manual which contains all the information that the franchisee needs to run his or her business. Franchising exist across many different industries, but the most common are in the restaurant and food service industry.
Table of Contents
1. Market Entry Options
2. A Strategic Alliance
3. An Acquisition
Objective & Topics
This text explores various strategic methods for companies to enter international markets, analyzing the operational and financial implications of different business models. The objective is to provide a balanced overview of the advantages and risks associated with market expansion strategies.
- Franchising as a business model for global expansion
- Benefits and drawbacks of strategic alliances
- Mechanisms and impacts of corporate acquisitions
- Comparative analysis of market entry vehicles
- Real-world case studies including Subway, Star Alliance, and Starbucks
Excerpt from the Book
Market Entry Options
FRANCHISING is a business system in which a company (or franchisor) sells an individual (or franchisee) the right to operate a business using the franchisor’s established system or format.
As part of the franchise agreement the franchisee pays an initial sum of money, a franchise fee or front end fee to the franchisor and agrees to pay a royalty or management service fee for continuing advice and assistance, which is usually calculated as a percentage of annual turnover. The franchisee may also pay an advertising fee to contribute to the franchisor’s annual advertising and marketing costs. The franchisee also has to find the capital to open the business. The franchisor provides an operations manual which contains all the information that the franchisee needs to run her or his business. Franchising exist across many different industries, but the most common are in the restaurant and food service industry.
One example for franchising is how the US American company Subway Restaurants entered the German market. Subway is a fast food restaurant, which primarily sells sandwiches called “subs” and salads. The company was founded in 1965 and by now there are 30,246 restaurants in 87 countries. The first store in Germany opened on 13th June 1999 in Berlin. Subway is very successful in Germany because of its Unique selling proposition with fresh and healthy food. Today there are 690 stores. Every 4 days a new one opens. Till 2011 1,500 restaurants are planned.
Summary of Chapters
Market Entry Options: This chapter defines the franchising model, detailing the financial commitments and operational responsibilities shared between the franchisor and the franchisee.
A Strategic Alliance: This section examines how companies leverage collaborative relationships to pool resources, share risks, and access new markets more efficiently.
An Acquisition: This chapter covers the process of company takeovers, highlighting how they serve as a tool for rapid market penetration and resource consolidation.
Keywords
Franchising, Strategic Alliance, Acquisition, Market Entry, International Marketing, Franchisor, Franchisee, Business Expansion, Market Penetration, Corporate Strategy, Synergy, Risk Management, Global Business, Takeover, Competitive Advantage
Frequently Asked Questions
What is the core focus of this document?
The document serves as an overview of three primary strategies businesses use to expand their operations into foreign markets: franchising, strategic alliances, and acquisitions.
What are the primary themes discussed?
The central themes include business system structures, international market growth strategies, the balance of control vs. risk, and the trade-offs between shared resources and organizational independence.
What is the primary objective of this text?
The objective is to explain the mechanisms of specific market entry methods and provide a comparative perspective on their respective benefits and limitations for a firm.
Which methodology is employed in this work?
The text employs a comparative descriptive approach, utilizing real-world corporate examples and case studies to illustrate theoretical market entry concepts.
What is covered in the main body of the text?
The main body breaks down the operational characteristics of franchising, the collaborative dynamics of strategic alliances, and the strategic rationale behind corporate acquisitions.
Which keywords define this work?
Key terms include Franchising, Strategic Alliance, Acquisition, Market Entry, and International Marketing.
How does the Subway case study exemplify the franchising model?
Subway demonstrates how a standardized system, coupled with local management and investment by franchisees, allows for rapid international expansion and effective brand replication.
What is the primary advantage and disadvantage of an acquisition?
The primary advantage is rapid market entry and access to existing distribution networks, while the primary disadvantage involves the risk of incompatible corporate cultures and potential overvaluation of synergies.
- Quote paper
- Chris S. (Author), 2008, Market Entry Options, Munich, GRIN Verlag, https://www.grin.com/document/135083
