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Purposeful Franchising: Re-Thinking of the Franchising Rationale - Assignment Example

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This paper "Purposeful Franchising: Re-Thinking of the Franchising Rationale" discusses franchising as a common method of entering the market in the services entry as has been in the case of the fast-food segment or the hotel industry or even in the field of higher education…
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Purposeful Franchising: Re-Thinking of the Franchising Rationale
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Download file to see previous pages Selecting the right mode of entry the first time is important because there are no second chances. Wrong choices lead to lost market potential and loss of important committed resources such as management time and money (Rajan & Pangarkar, 2000).

To decide on the choice of entry mode requires a study of the internal and external environment. The external environment or the macro environment includes the political and economic factors in the host country, the government rules and legislation, the trade barriers, and the host country market environment. The internal environment or the micro-environment includes service factors, corporate goals and objectives, and corporate strengths and weaknesses. The location is equally important before an entry choice can be made (Ekeledo & Sivakumar). Various factors that need consideration are the firm size, technology transfer, market size, cultural distance, immigrant effect, international experience, country risk and uncertainty, industrial barriers and firm advantages, foreign exchange rate, and host country currency (Zhao & Decker, 2004).

Foreign entry is also based on the characteristics of the parent firm, on the characteristics of the operation in terms of size, on the relationship between the two, which means the nature of the transaction, on the situation of the industry entered or the degree of competition, and the characteristics of the host country. Based on these, decisions are taken whether the entry should be in the form of contracts or equity-based. Based on different theoretical perspectives and the level of control and commitment required, there are four different entry modes – exporting, contracts (licensing) joint ventures (JV) or wholly-owned subsidiaries (WOS) (Brouthers & Hennart, 2007).

According to Rajan & Pangarkar (2000), licensing ventures are further characterized by the levels of control, costs, and competence. Firms opt for WOS when they want the maximum control and are prepared for maximum risk and commitment (Brouthers & Hennart: 2007, Agarwal & Ramaswami:1992) while licensing provides almost no control and joint ventures provide an intermediate degree of control where control is the ability to influence operational and strategic decisions of the foreign operation (Rajan & Pangarkar, 2000).  ...Download file to see next pagesRead More
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