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Reinventing Business Growth Franchising

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Question:

Discuss about the Reinventing Business Growth Franchising.
 
 

Answer:

Introduction

The business operations are taking a new direction in the developed nations considering the huge inflow of FDI i.e. Foreign Direct Investments by the means of Franchising. There has been a vast literature presented by focusing on the franchising business in several developed countries. The focus of this study is over the literature presented on the Australian fast food industry and franchising. The business of franchising is usually accepted in Australia and yielded higher revenues for the domestic operators. Therefore, franchising in the Australian fast food sector is a growing business which is satisfying the needs of Australians in terms of revenue generations as well as job creation (Hussain and Windsperger, 2010).

There is presence of intensified global competition; earlier ten local organisations that use to dominate the domestic market at home now find the global competitors’ to compete with abased on their arrival by the means of franchise as an entry and distribution strategy for entering and gaining in the new markets. As per the researchers Cavusgil, Knight, Riesenberger, Rammal and Rose (2014) franchising is recognized as a robust source for the distribution and marketing of the services and the products which are employed by the franchisors for marketing their services and products. It has been illustrated by Doherty (2009) that since the period of 1960s, there has been observed a significant growth in the international franchising and that is because of the pull and push factors. The aspects such as diminishing profits, increased competition and domestic saturation have forced the franchisors to inspect the business opportunities available in the international regions as there are supporting political conditions, demographic factors and favourable macroeconomic aspects which have pulled the interest of the franchisors (Hoffman and Preble, 1991). The researchers and the industrial analysts have observed franchising as one of the key strategy incorporated by the MNCs i.e. the multinational corporations for expanding and prompting their business operations in other untapped regions and this has touched diverse sectors comprising the fast food sector which is primarily the key area for this study. And therefore the primary intention is to focus upon the opening of a new Subcontinent-style fast food franchise in Australia (Dant, Grünhagen and Windsperger, 2011).

 


In last few decades, the interest in the franchising business is growing with an increasing rate as it has been recognized as a new market entry approach and a pioneering distribution paradigm in the marketing environment. The increasing attention has given birth to varied literature and view-points by practitioners, scholars and authors. According to the author, Franchising can be explained as an agreement among the two organisations where the service or product producer grant the rights of conducting the business as independent business in a particular manner, for a certain period of time and at a designated place to a franchisee. Franchising is not a business in itself but a specific way of performing business. As per the FCA i.e. Franchise Council of Australia, the franchising is a business association under which the franchisee attain the rights from the franchisor to distribute and market the services as well as goods, and to take use of the business name for a specific time period (Awoseila, 2011).

Australia is considered as one of the regions which have the highest number of fast food franchising. The opening of a new sub-continental fast food franchise in Australia is considered both as a good as well as a bad decision for the organisations. As per the studies, the Australian market is considered as the most profitable market for the fast food companies as there is increasing rate of consuming fast food among the Australians. There are gigantic fast food chains which have established by the means of franchising such as McDonald’s, KFC, Subway. These three fast food chains entitle for 65 percent of the total fast food market share in Australia (Brailsford, 2003). The country is a hub for the MNCs who are seeking business and trade options in the fast food sector through franchising, the legal laws and regulation relayed to franchising are also extremely supported which acts as the pull factor for the foreign direct investments. There are continuously increasing rate of the individuals as well as the children suffering from obesity in Australia which shows the dietary habits of the people in Australia. There are other numerous advantages of Franchising business in Australia as discussed by several authors related to the availability of the effective and trained management, easy capital loan from the banks without much issues and regulatory frameworks, higher brand recognition, less risk associated, rapid expansion, higher profits, franchisee has the knowledge of the host country, franchise royalties, favourable macroeconomic factors, etc.

As per the trade theory explained by various authors and researchers, the multinational companies get involved in the international business operations to achieve monopoly as well as high return to scale. There are several domestic factors which pressurises the companies to move to global world for increased sustainability and growth. The factors include lack of opportunities, upsurge competition and consistency in the market. The opening of a sub-continental style fast food chain in Australia is relatively a beneficial option for the companies to initiate trade in the regions of Australia and to have a recognized existence in such developed nation. But oppose to the views of the above researchers and authors, there are certain arguments which restricts the organisations to have opening of a sub-continental style fast food chain in Australia (Hussain and Windsperger, 2010).

 


As per the views of the author, the Australian market is already a fully groomed market in consideration with the fast food sector. The big giants like McDonald’s and KFC have their high monopoly in the Australian market which restricts the new entrant to enter into the fast food industry and give competition to the domestic placer as well as these large scale franchisees (Weaven and Frazer, 2007). The next argument given by the authors is that, since few years, the people are moving towards to a healthier life because of the rapidly increasing diseases such as obesity, diabetes, harmonise imbalance, etc. (Reed and Elliott, 1999). Among the individual who have more of fast food consumption. Therefore, as per the views and opinions of the researchers opening of fast food is relatively a bad idea because of the fact that people are stepping head towards the healthy and nutritious food habits. The changing habits of the individuals and the influence of the preens on the children to have a balanced diet instead of fast food results in decrease in the demand for the fast food in the Australian regions. Because of extensive amount of pressure laid down upon the domestic and local retailers of the fast food industry, the Government is also restrict ting the multinational corporations to have a market entry in the Australian fast food industry by the means of franchising. The source of income is getting squat with time because of the increased presence of the multinational companies through franchising, joint venture, merger or acquisitions (Frazer, Weaven and Wright, 2002).

Australia is recognized as the fat nation because of the factors that the presence of fast food outlets it incaresing with a rapid rate. There is a significant role of these outlets in the increasing demand for the fast food among the Australians (Paik and Choi, 2007). There is vast demand for hamburgers, pizza, fried chicken, ice-creams, etc. The high demand for fast food fetches the attention of the companies but the regulatory frameworks somehow restrict the increasing presence of the multinational companies in Australia. The Trade Practices Act 1974 and the Trade Practices Regulations 1998 have their strict laws and legal frameworks as per which the organisations can enter in franchising agreement. There are other issues such as franchisee failures which also restrict the organisations to involve in franchising. As already discussed, fast food industry is a mature business industry of Australia, thus, the chances of franchising failures are much high because of higher market competition, decreased sustainability, few or no untapped markets or regions to cover with the fast food business operations (Fleischhacker, et al., 2011).

 


There is a vast impact of franchisor failure on the franchisees as there can be collapse of the franchisee’s business or the failure of the franchisor’s business. In number of researchers, the failure is of the franchisee unit which is acting independently.  In, Fast food nation: The dark side of the all-American meal, Schlosser, have explained the impact of franchising failures in an in-depth manner, where not only the positivism of franchising is targeted but also the disadvantages and negative implications of franchising have also targeted (Schlosser, 2012). Australia is a developed nation with dynamic environmental factors and highly fluctuating economy. The opening of a sub-continental fast food restaurant is both a risky and beneficial decision. There can be attained several advantages from the opening of fast food restaurant through franchising agreement such as trained management, low risk, high control, balanced approach, applied theories and practices, increase brand value, increased sales, higher market share, presence in untapped region, etc. But at the same time, scholars demonstrate the negative outcomes too including control issues, franchising failure, entrance in a fully developed sector, increased competition, tough entry, management issues, etc. (Combs, Michael and Castrogiovanni, 2004).

 

Conclusion

In this paper, it has been review that how rapidly the fast food sector and the franchising business operations are rapidly increasing in the markets of Australia. The country is a well-known and well-established place for the inflow of foreign direct investments. The literature presented on franchising shows that there are both pros and cons of involving in the franchising agreements. The Australian market are the competitive markets which support franchising and foreign direct investments but still for saving the local retailers, there is firmness in the legal frameworks. From the perspectives of various authors and researchers the advantages of performing franchising business in a good decision but when it is in consideration with fast food industry of Australia, the same observes as a less effective because of the increased competition and high number of fast food outlets already existing in the nations. The literature shows that people are moving towards healthy and nutritious dietary patterns because of increasing health issues among the adults as well as the children. Therefore, the opening of a sub-continental-style fast food franchise in Australia have numerous benefits which acts as the push factor to initiate the business operations but at the same time some factors also acts as the restricted forces.

 

References

Awoseila, F., 2011. Reinventing business growth through franchising in developing economies: A study of the Nigerian fast food sector. International Journal of Marketing Studies, 3(1), p.162.

Brailsford, I., 2003. 'US IMAGE BUT NZ VENTURE': AMERICANA AND FAST-FOOD ADVERTISING IN NEW ZEALAND, 1971-1990. Australasian Journal of American Studies, 22(2), pp.10-24.

Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Pearson Australia.

Combs, J.G., Michael, S.C. and Castrogiovanni, G.J., 2004. Franchising: A review and avenues to greater theoretical diversity. Journal of Management, 30(6), pp.907-931.

Dant, R.P., Grünhagen, M. and Windsperger, J., 2011. Franchising research frontiers for the twenty-first century. Journal of Retailing, 87(3), pp.253-268.

Doherty, A.M., 2009. Market and partner selection processes in international retail franchising. Journal of Business Research, 62(5), pp.528-534.

Fleischhacker, S.E., Evenson, K.R., Rodriguez, D.A. and Ammerman, A.S., 2011. A systematic review of fast food access studies. Obesity reviews, 12(5).

Frazer, L., Weaven, S. and Wright, O., 2002. Franchising Australia 2006 Survey. Griffith University and Franchise Council of Australia.

Hoffman, R.C. and Preble, J.F., 1991. Franchising: Selecting a strategy for rapid growth. Long Range Planning, 24(4), pp.74-85.

Hussain, D. and Windsperger, J., 2010. Multi-unit ownership strategy in franchising: Development of an integrative model. Journal of Marketing Channels, 17(1), pp.3-31.

Paik, Y. and Choi, D.Y., 2007. Control, autonomy and collaboration in the fast food industry: a comparative study between domestic and international franchising. International Small Business Journal, 25(5), pp.539-562.

Reed, R. and Elliott, P., 1999. The valuation of fast-food outlets: analysis, methodology, and reliability. The appraisal journal, 67(4), pp.359-369.

Schlosser, E., 2012. Fast food nation: The dark side of the all-American meal. Houghton Mifflin Harcourt.

Weaven, S. and Frazer, L., 2007. Expansion Through Multiple Unit Franchising Australian Franchisors Reveal their Motivations. International Small Business Journal, 25(2), pp.173-205.

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