Retailing is such a fast-moving industry it is difficult to keep on top of changes in domestic markets, let alone those in geographically and culturally distant foreign markets. Although it is tempting for a UK-based retailer to remain domestic and focus on strengthening their competitive position in the UK before going overseas, the most successful retailers continuously explore what it takes to operate effectively across national borders. UK retailers need to “think bigger” if they are to escape the economic slowdown of Western Europe. There is now a renewed push for internationalisation by UK firms and they are setting adventurous growth targets. Retailing is fast becoming a global industry and it is vital for “UK plc” that our leading retailers are successful in emerging markets. Against this backdrop, we conducted a study of one type of foreign market entry mode, namely franchising. We propose that franchising is to retailing what exporting is to manufacturing. It is a low-risk, low-involvement way for retailers to enter risky foreign markets, but which nevertheless must be professionally executed. In order to shed light on how UK retailers can make franchising work in emerging markets, we focus on the advanced franchising model used by one particular retailer. This model has been developed over decades of steady expansion of its franchising operations overseas. As well as examining their franchising operations, the study gathered a range of other information on international franchising in order to develop a complete picture of good practices. It is unlikely that a firm with a fast-moving, complex product assortment (e.g., general merchandise) will be able to follow the franchising model of dealing with many small franchisees across many foreign markets (i.e., the McDonald’s model). Indeed, the focal retailer uses an area development franchising approach, targeting franchisees that have capabilities sufficient to develop and manage a franchisor-branded store network in their country or region. While not equals, given the franchisor’s ownership of the brand, such relationships operate as partnerships. Franchisees are empowered to exert influence and use their local know-how to help meet the precise needs of foreign customers. Unlike in traditional franchising partnerships, where the franchisor is in control and intensively monitors across its network of franchisees, we observe that cross-border franchising may be optimally developed through openly communicating with and trusting a capable partner. The differences between emerging markets and the UK can be so extreme that it is difficult for the franchisor to control operations there, irrespective of their resource base and experience. In effect, the franchisor is reliant on the franchisee to make and implement decisions in the local marketplace and absorb risks. The overseas franchisees can effectively play a role in building the brand with the franchisor through a form of alliance. Knowledge exchange is crucial not only in the running of the franchise partnership but also for the franchisor’s learning about local market conditions and growth opportunities. When operating in emerging markets the franchisor needs to “learn from their experiences all the time”. UK retail brands resonate strongly amongst aspirational, emerging market customers. Yet, retailers can be slow to go overseas if they perceive differences in, and lack familiarity with, foreign markets. This is where franchising comes in. Far from being a basic business model, best-in-class franchising can be made to play a central role in overseas retailing due to its ability to mitigate threats and seek out growth opportunities. Furthermore, UK retailers can derive flexibility advantages from using franchising in emerging markets as the basis upon which to expand into other, higher-profit equity-based modes (e.g., joint ventures) if and when local circumstances dictate this.
CORE (COnnecting REpositories)
CORE (COnnecting REpositories)