Franchising as a Business Start-Up - Thesis Example

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Modern fast-food restaurants that consider making entry into a franchising business would have to adopt a strategy that would enable them to achieve the intended results. There are a number of such options available to fast food restaurants such as those direct entry methods, e.g. export buying agency or a trading company, and indirect entry methods, e.g. intermediate entry modes such as licensing and franchising (Alon, 2005). It’s also desirable to go for a hierarchical arrangement like a merger, an acquisition, or a wholly owned subsidiary.

Franchising can be defined as  “A  form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee” (www.investorwords.com). It is a business model for anyone who wants to start up a business that they don’t have an established business idea. Thus franchising has been in existence in over 70 countries worldwide with sales of US$ 1 trillion. A franchisee could be able to run a business under a particular brand name with the cooperation of a franchisor.

When it comes to Subway, a fast food franchise in the USA can be considered one of the constantly growing franchises in the global arena with 32, 131 in 90 countries. Moreover, it is the largest single-brand fast food restaurant chain and holds second place from the largest operators like Yum Brands. Subway mainly operates its business in the US and five other major regions including Europe, the Middle East, Asia, Latin America, and the UK. Subway provides its franchise opportunity to worldwide businesses by fulfilling a few steps – research the Subway franchise; submit applications and; find a best place to locate from the restaurant maps; get worldwide contact information from regional managers get capital investment information and find a way to get a loan.

The Subway Fast Food Company is considering entry into other regions could conveniently adopt one of the latter strategies. Existing Subway restaurants that already have a line of fast food items operating in the up-market segments could be a good proposition though it has fewer strategic advantages when compared to operating a wholly owned fast food restaurant. As much as a franchising arrangement with foreign companies might not be feasible, franchising could reduce the degree of operational freedom of the franchised company. Therefore compared to wholly owned fast food restaurants franchised restaurants could be regarded as the best alternative in the competitive business environment. Wholly owned restaurants would enable the management to carry on with some freedom by way of both its competition policy and operational strategy. There is a greater degree of risk associated with those wholly owned fast food restaurants.

The Subway restaurants with a huge potential for fast food items ranging from sandwiches, salads, and pizzas, are ideal for a franchised fast food restaurant. As the PEST analysis suggests political and economic parameters are conducive for franchisors to operate with minimum interference from authorities despite some business registration and final approval procedures (Ashbill, & Goldman, 2001). Similarly, the political climate is neutral and is supportive of new franchisors that generate some employment opportunities for the global people. The strategic operational environment of the Subway fast food restaurant is free from the type of constraints that are all too familiar in already congested markets.

However, wholly-ownedseveral fast food restaurants as against franchises would be indispensable in circumstances where markets tend to be fragmented wholly or partially on the lines of demographics and cultural paradigms. The Subway restaurants demographics unlike the rest of the UK in particular and the EU in general are highly influenced by a core group of immigrants from different parts of the world. Where there is a higher level of the youthful population as in Dublin the marketing aspect of the new firm in the host country becomes altogether oriented towards the younger age groups. Franchised restaurants like Subway in the host country have the capability and capacity to develop their Human Resource Management (HRM) function given the highly volatile variables associated with recruitment, training & development (T&D) of skills, and even VRIO (value, rarity, inimitability, and organization) environment so that rivals would be clueless about its marketing and internal management strategies. ...Download file to see next pages Read More