Franchising has been used by many different types of companies to effectively enter new markets, or to expand their existing market share. In a franchise agreement, the franchisor provides training and the rights to a particular technique or product, and the franchisee assumes the risks (and rewards) associated with the business activity. Fast food restaurants and hotels are examples of successful franchise operations in the international market. Franchising provides participants with the opportunity to enter global markets and rapidly expanding economies, thus diversifying the risks associated with operating in only one geographic market. However, the political and economic situation in the international arena can be volatile, particularly in new economies, and many companies are wary of the risks associated with entering this market. Foreign exchange, political instability and pressure brought by the international community all have an impact on the international business environment, including franchising. This research examines the benefits and risks associated with franchising in the international marketplace.
At its most fundamental level, franchising is merely "a method for distributing products or services". Franchises involve relationships between the franchisor (who provides the brand recognition and expertise in the product or service) and the franchisee, who markets the product in accordance with the franchise agreement ("What is Franchising?" 2001, p. 1).
However, there are variations on the franchising concept which can be used in the international market, depending on the business environment within a particular region. Specifically, five strategies are commonly employed by international franchising operations: master franchisee, joint venture, licensing, direct investment and working with the local government as the franchisee (Chan & Justis, 1990, p. 76). Some of these (master franchisee, joint venture ...