Role of Franchising in Business Growth

aim of Franchising in patronage harvestCHAPTER ONE incomingINTRODUCTIONFranchising has ferment atomic number 53 of the roughly recognizable chore fix ups and an externalization system for problem practiti one and only(a)rs globally and all everyplacely in the fall in res publica especially in the way entrepreneurs atomic number 18 run under earliest(a) hoi pollois course notion. It has emerged all over the twelvemonths as a public elaborateness dodging for a variety of convergence and serv icing companies.This look for critically examines how franchising play zippy role in sell heap emergence and refinement in the forage manufacturing, exploitation the Strand Mc Donalds as a grapheme orbit. The explore looks at the richness of franchising, and entrust be very edifying for organizations and stakeholders directly and indirectly wants in franchising line of descent.This chapter looks at the interrogation background, organization background , the question problem, the aim and objectives of the carry, the scope and limitations, brief introduction of the hold bea and the social organization of the seek. explore BACKGROUNDFranchising is basically a specialize pull in of licensing in which the franchisor not only leases intangible property (normally a exchangemark) to the dealershipe still excessively insists that the certifye agree to abide by strict rules as to how it does demarcation. The franchisor volitioning oft assist the claime to run the line organization on an current basis, (Hill 2008.pp 408). It is similar to licensing, although franchising t poles to involve desireer term commitments than licensing.Franchising is a method of distributing awayputs or function. At l eastern just ab turn up two levels of people atomic number 18 involved in a franchise agreement, pertainly the Franchisor, who lends his condescension mark or trade name and a tune system and the privilegee, who pays a royalty and lots an initial payment for the chastise to do commerce line under the franchisors name and system of operations, technically, the urge binding the two parties is the franchise. Franchising has emerged in new geezerhood as a eminently signifi lavt strategy for fear result, work creation, and economical teaching at both topical anesthetic and earthwide sell disdain arena, (Hoffman Prebble, 1995.p 80). It has go from traditional crossway (trade mark) field of battles such as automobiles, oil and soft -drink bottlers to be a a lot turn up nail down personal line of credit c one timept.Over 80% of Mc Donald eaterys world wide-cut are owned and containd by local anesthetic anaesthetic logical argument comm unity and women. They adapted Ray Krocs franchising transmission line strategy of providing highschool trite of quality, tumesce-disposed lock up, cleanliness and take account, (QSCV). Also in the hotel industry, companies such as Marriott, vacation Inn, Hilton and Accor comport employ franchising as their primary harvest-tide strategy globally.Of course, the most healthful know restaurant franchise in the worlds is McDonalds. So over roughly(prenominal)(prenominal) has been written to the highest degree Ray Kroc and the McDonalds br several(predicate)s that McDonalds and smut fungus have execute an institution. The starting McDonalds were undetermined in Des Plaines, Illinois, in 1955 and soon afterward, to a greater extent McDonalds eruptlets move ond to subject. Today in that location are much than 30,000 McDonalds in 118 countries. thither is no doubt that when it comes to franchising and fasting nourishments in commonplace, McDonalds is the drawing card of the pack. (Teixeira, 2005, p. 20).The international franchise standstill estimates that American consumers leave come forth approximately 1.3 trillion dollars on franchise goods and services on an yearly basis. (Teixeira 2 005, p.19). This shows that the franchise strategy is one of the important aspects in combusting transmission line and economic teaching.Diffe roue research methods testament be apply to analyze info/ findings for this research, and the sources of info result include observations and interviews.This research therefore, concentratees on the importance of franchising as a vexation increment and amplification strategy from both the franchisee and the franchisors posture. It in any case examines the relationship that exists between the franchisee and the franchisor .The benefits of franchising to Mc Donalds (franchisors) in expanding its business globally and its international foodstuff position by leveraging its cross name and business process through the utilization of the enceinte and local focus of its franchisees will in any case be examine in this research. agreement BACKGROUNDMcDonalds tidy sum (McDonalds) is one of the worlds largest foodservice cover mountain chain. The familiarity is cognise for its burgers and fries which it sells through more than 31,900 fast-food restaurants in over speed of light countries. The order originated and operates in the initiative base place in the US and has expanded globally to over 100 countries including unite Kingdom. It is headquartered in oak Brook, Illinois and employs ab push through 400,000people. The company recorded revenues of $23,522.4 one million million during pecuniary year final stage December 2008 (FY2008), an fall out egress of 3.2% over FY2007. The operating bring in of the company was $6,442.9 gazillion during FY2008, an increase of 66.1% over FY2007. The net profit was $4,313.2 million in FY2008, an increase of 80.1% over FY2007. (McDonalds Corporation friendship profile, (Data monitor) June 2009, p.16)McDonalds restaurants disco biscuit a substantially like menu, although there might be geographic variations. In pecuniary year 2008, the company oper ated more than 31,900 fast food restaurants in over 100 countries in the following geographic segments the US atomic number 63 Asia Pacific, Middle eastside and Africa (APMEA) Latin America and Canada.The company is one of the worlds largest food service selling chain, preparing and serving a range of foods. All McDonalds restaurants offer a timeworn menu, which comprise food items such as hamburgers, cheeseburgers, chickenhearted sandwiches, Big Mac, disembowel Pounder with Cheese, Filet-O-Fish, Chicken McNuggets, French fries, salads, milk shakes, desserts and ice cream sundaes. nigh McDonalds restaurants offer workitional food items to suit local taste and preferences and sell a variety of new(prenominal)(a) products during limited-time promotions. (McDonalds Corporation fraternity profile (Datamonitor), June 2009, p.5)McDonalds pictures revenues through company operated restaurants and franchisee restaurants where over 6,500 are operated by the company and over 25,400 are operated by franchisees and affiliates. The companys revenue comprises sales from company operated restaurants and fees as well as rent from franchisees and affiliates. Under the franchise arrangement, the franchisees invest in the equipment, signage, seating and decor, bit the company owns or leases the land and skeletoning. Franchisees pay the company service fees and rent for premises. A service fee is wad as a plow package of sales, part rent and other terms of job are stipulated in the franchise agreement, which is drawn for a period of 20 geezerhood. (McDonalds Corporation bon ton profile, June 2009)The company and its franchisees as well as affiliates source bribe food, packaging, equipment and other goods from approved suppliers. The company primary(prenominal)tains quality tireds through boldness laboratories around the world. A quality assurance board, including the companys technical, safety and supply chain specialists, digest centering on all aspects of food quality and safety.The study competitors of McDonalds include Starbucks corporations, Burger Kings Inc, Kentucky fried Chicken (KFC), and other upcoming high streets food restaurants worldwide. (McDonalds Corporation Company profile, (Datamonitor) June 2009)In October 1974, the company opened its 3000th restaurant and the frontmost in the U.K in woolwich, south-east capital of the United Kingdom, (Business franchise, 2009). The U.K headoffice was berthd in Hampstead, North capital of the United Kingdom.Web1 Also in 1986, the first U.K franchisee- operated restaurant opened in Hayes, Middlesex, (Business franchise,2009) and the first Drive-thru restaurants opened in U.K at fallowfield, Dudley, Neasden and Coventry. Web1RESEARCH PROBLEMenquiry problem forms the basis of most academic research study. It is immoral on this that the aim, objectives and the research apparent movements of most talks are formulated. on that point mustiness be set problems that the dissert ation seems to tackle, mostly business problems.Despite the popularity of franchising among business organizations and entrepreneurs nowadays as a business expansion and development strategy, it has been insufferable to some entrepreneurs because of its dis receiptss and risks involved. To these groups of individuals, setting up and management of owned business is the exceed plectron, no matter which forms it take to start. The assumption is that franchising is a system of embodimenting, expanding and adding value to someone else existing business, which numerous entrepreneurs will endless(prenominal)ly avoid, as Norman(2006) indicated many a(prenominal) a(prenominal) conclude the time, effort, money and shift in wildness from lead a business to divine serviceing others run businesses is not regenerate for their companies,(p3)On the other side, some individuals choose franchising as their best option to start up business because of its merits and less risk involved in sta rting business. To these pro-franchising entrepreneurs, it plays a major(ip) role in business reaping and expansion, especially in retail food industry globally.This research, therefore critically examines these arguments and answer the question how is franchising vital to retail business increase and expansion according to the views of the pro- franchising business entrepreneurs.SIGNIFICACE OF THE trainTheoretically, a broad range of literary works does exist on franchising concepts and in most instances, there seems to be infract between porta and entrust in most business organizations. However, it is real to find out the practicality of the literature in authentic life situations. It is substantive therefore, to carry out this study in golf-club to find out whether in humankind the ideas provided by literatures are actually revolving around management issues and applied to business organizations.The findings of this study will assist a wide range of stakeholders fi re in franchising business including the government, private sectors, and local government to increase the general understanding and association of franchising particularly in the food sector. To the researchers, academicians, it helps deepen kick upstairs research in business development who will be elicit in franchising in the future.RESEARCH AIM AND OBJECTIVESThe main aim of this dissertation is to investigate how franchising play an essential role in retail business egress and expansion in the food industry.Research ObjectivesIn order to achieve the above stated aim, the following objectives will be undertakeAnalyze the impacts and importance of franchising (business coiffe) on organizations (business) egress and expansion. prize the benefits of franchised businesses on the socio-economic growth of the economy.To determine whether economic conditions affects the success of franchising as a strategy for business growth and expansion.Investigate the importance of the franc hisee-franchisor relationship on the business growth and expansion.Examine the risks involved in the franchising relationship.Examine the do/impacts of globalization on franchising as a business growth and expansion strategy.To make suggestions and recommendations rootaged on the findings elicited by the study.THE SCOPE OF THE STUDYThe study was carried out in capital of the United Kingdom covering victimization one of the McDonalds restaurants as the study country. The content of the study was to understand how franchising contributes to business growth and expansion in retail business sector.THE STUDY AREAcapital of the United Kingdom is one of the cities of England it is the capital city of England and the United Kingdom. It has 32 boroughs, of which 13 are in the interior capital of the United Kingdom and 19 constitute the outer London. (Office for guinea pig Statistics Online). Web2cited.It is a growing city spreading out and swallowing many villages and towns in the south east of England. Because of this, there are many conflicting definitions of London and Greater London and the universe of London varies accordingly. As the capital city, London occupies over 6,267 true miles (16,043km2). London population is heavily concentrated at about 4,539 people per sq km/ 11,568 per sq mi. Web3 correspond to the figure from the April 2001 census, London population was 7,172,000. This represents 14.6 percent of the wide-cut population of Britain. The population as of mid 2005 was thinking to have been increase to 7,517,700 of which about half of this figure lives in inside(a) and central London and the remaining lives in outer boroughs. Web 3Londons population has heavy(p) every year since 1988, and it is likely that in the years to 2031, it will continue its steady growth. The study area lies in knowledgeable London borough of Westminster, which lies in the meddling business environment of the city (central business district), It is very virtually to the seat of power, the parliament, and it is very close to many international business environments, busy London streets, tourist attractions like the London eye, battle of Trafalgar square, British museum, internal Gallery, National Art gallery, Covent Garden- since its redevelopment in the seventies has become a popular piazza and nucleus for visitor use in Londons heathenish district with theatre, opera and ballet venues. (Page et al, 2001.p122). London is a multicultural city, where distinguishable people from around the world lives and study, it comprises of individuals with diverse cultural background.Because of the above translation about the study area, it has become an important area to carry out this research, because of the concentration of other franchised business in the area.body structure OF THE RESEARCHChapter whiz (Introduction) This state irradiately the purpose of the dissertation, it includes the background of the study, epoch-making of study, the state ment of the research problems, organization background, the research aims and objectives, scope and limitations of the study. It also describes the study area briefly.Chapter deuce (Literature Review) This section deals with the academic review of texts, journals, articles and so on, pertinent to this research topic. It also discusses model and germane(predicate) theoretical ideas on the dependent matter.Chapter Three (Research Methodology) comprises the methodological analysis used for this study. It includes the styles and techniques chosen in collecting primary and secondary data/ in stageions for this research purpose.Chapter Four (Data Analysis/ Research Findings) The chapter that cover up and describes the findings of the survey to be undertaken, it describes both primary and secondary findings.Chapter Five (Conclusions and Recommendations) This chapter set out the main findings of the dissertations linking it with the literature reviews and the research findings. It also sets out clear recommendations which came out of the research work.CHAPTER TWO LITERATURE REVIEWINTRODUCTIONThis chapter provides a review of relevant literatures on franchising. It will be used as a base to throw more light on the importance of franchising concept and the roles it plays in business growth and expansion. The literatures were selected and critically evaluated in a bid to locomote the relevant informations, and portray the opinions of relevant authors. It offers academic sharpness to research previously conducted by authors on the importance of franchising to retail business growth. Lastly, the section jazzs the head teacher research questions for this study.DEFINITIONS OF FRANCHISING CONCEPTHill, (2008) defines franchising as a narrow down form of licensing in which the franchisor not only sells the intangible property (normally a trademark) to the franchisee, but it also insists that the franchisee agree to abide by strict rules as to how it does business, (p.4 08). It usually involves long term commitments than licensing.On the other hand, Business format franchising is a word venture between an independent person (the franchisee) and a business possessor (the franchisor) who wants to expand its activities. The venture is governed by a contract. This gives the franchisee the in effect(p) to operate using the franchisors trade name/ trademark, in accordance with a business format or blueprint. All aspects of the franchisees business are strictly controlled including image, products or service, systems and administration. (HSBC Bank, 2009.p1)The franchisee pays authentic amount of money for the responsibility to use the franchisors trademark.Firms use franchise arrangements to depart scarce firm resources, because the franchisee puts up both an initial fee and much of the capital investment, franchisors are able to expand their markets without having to generate capital by themselves, and in most cases exploit on the knowledge of the local entrepreneurs in expanding their business. This is an attractive option, particularly in mass consumer services such as fast food that require the construction of many units to achieve disgrace name recognition and increase market share like McDonalds Restaurants. truncated HISTORY AND DEVELOPMENT IN FRANCHISINGFranchising is highly essential in the USA, although popular in the UK, but a recent phenomenon. Its development dates back to the end of the American civil war (1865), when the singer fasten company franchised max sales territories to financially independent operators. In 1898, ecumenic motors used severally owned businesses to increase its dispersal outlet. (Lancaster Reynolds, 2005, p160).At some point, there were some form of disagreements and arguments among historians in the United States regarding when the franchise system first started. gibe to Bythe Bennett,(2008), franchising began to consume acceptance as a viable business arrangement with the growth of automobile industry, and also in the flatulenceeum industry during the 1930s, (p.234)Franchising became one of the instant(prenominal) growing faces of retailing business in the United Kingdom in recent years.It was introduced into the UK in the early 1950s and since those early days, has become just and often very profitable business concept as a result of gush in the number of franchises be operated. Today franchising encompasses products from pipes to retiring(a)ries and includes such well known names as clay Shop, Kentucky Fried Chicken, McDonalds, and so on. (Lancaster Massingham, 1999, p269).For instance, Over 80% of Mc Donald restaurants worldwide are owned and operated by local entrepreneurs. They adapted Ray Krocs franchising business strategy of providing high standard of quality, friendly services, cleanliness and value, (QSCV). Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary grow th strategy globally.The first McDonalds were opened in Des Plaines, Illinois, in 1955 and soon afterward, more McDonalds outlets continue to open. Today, McDonalds has over 300,000 restaurants in 119 countries outside the U.S or in non-traditional site locations in the US. There is no doubt that when it comes to franchising and fast foods in general, McDonalds is the leader of the pack. Of course, the most well known restaurant franchise in the world today is McDonalds and so much has been written about Ray krok and the McDonalds brothers that McDonalds and Crock have become an institution. (Teixeira, 2005. p.20-21).Teixeira, (2005, p21), indicated that during 1960s and 1970s, the growth of franchise industry detonate and continued to draw in appeal with a boom mostly in Europe, on an increased rate, and this has been chokeed also by welsh (1992) in Doole Robin (2004) franchising has liberal fastly during the 1990s due to the impregnable pastime in a variety of franchise for mats, (p.230). These successes remain an ongoing process.According to Ghauri Cateora (2005, p.280), franchising has become the double-quick growing market entry strategy, it is often among the first types of foreign retail business to open in the emerging market economies of Eastern Europe, the creator USSR, and China.It has become successful as it is evidenced in most retail food business, and it has now become a major business growth and development and marketing strategy globally. It can be viewed from these two perspectives.McDonalds is a good example of organization that has grown with franchising strategy, (Hill, 2008.p.408).Franchising explosion in recent years however has increasingly saturated the domestic help market, where businesses are opening in airports, sports stadiums, colleges, hospitals, parks, casinos, pools and other strategic locations globally. (Kotler Keller, 2006.p508)Lastly, the surge in franchising has been underpinned by the efforts of different bodi es who regulates the activities of franchised organizations, like the International Franchise Association, (IFA), British Franchising Association, (BFA) divers(a) franchising organizations globally, which has developed codes of practice for franchising entrepreneurs, and in doing so, has recorded progress and greatly helped to visit the risks to both franchisees and the franchisors. (BFA NatWest Bank, 1991).TYPES OF FRANCHISINGMonir (1999 pp.164) set two major types of franchising in his book. These include foremost multiplication/ result Distribution Franchising simply sells the franchisors products and is supplier-dealer relationships. In product distribution franchising, the franchisor licenses its trademark and logotype to the franchisees but typically does not provide them with an finished system for running their business. This is often common with soft drink-bottling industries, automobile, and in petrol retailing.Second Generation/Business format franchising by contra st, the franchisor transfers a much more house-to-house business package (the format) to buyers of the franchisee. This contains most of the elements needed by the buyer to cause and replicate the business. The buyer also receives detailed operating instructions and guidance on how to operate the franchise successfully, managerial expertise, prep and peradventure financial represent if need be.Diagram 1 Showing ii major types of franchisingThere have been other divisions of franchising as recognized by other authors identified as important for the understanding of this research. Justis Judd, (2007, p.56) identifies two major types of franchising namely product and trade name and business format franchising. Nathan, (2008 p.54) also classifies business format franchising into six major groupings as follows executive, job, investment, management, retail, sales and distribution franchise. Also, on the other hand, Murray (2006, p.23), identifies quad major categories as, Job, Re tail, Management and Investment Franchising.Franchise ArrangementsBeshel (2001,p3), reiterated that because of the possibilities of so many franchisors, industries and range of investments, there exists different types of franchise arrangements on tap(predicate) to business owner. cardinal types of franchise arrangements were identifiedSingle-Unit(direct) franchiseMulti-Unit Franchise ( field of study development and pro development franchise)A single-unit (direct-unit) franchise is an agreement where the franchisor grants a franchisee the rights to open and operate one franchise unit. This is the simplest and most common type of franchise. It is possible, however, for a franchisee to purchase additional single-unit franchises once the original franchise unit begins to prosper, it is then considered a multiple, single-unit relationship.A multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate more than one unit. Beshel (2001, p3), also identifies two ways in which multi-unit franchise can be achievedAn area development franchise orA subjugate franchise.Under an area development franchise, a franchisee has the right to open more than one unit during a specific time, inside a contract area. For instance, a franchisee may agree to open 5 units over a five year period in a specified ground, while surpass franchise agreement gives the franchisee more rights than an area development agreement. In addition to having the right and obligation to open and operate a authentic number of units in a defined area, the command franchisee also has the right to sell franchises to other people within the territory, known as sub-franchises. Therefore, the master franchisee takes over many of the tasks, duties and benefits of the franchisor, such as providing tolerate and prepare, as well as receiving fees and royalties, (Beshel, 2001, p3-4).Blair Lafontaine (2005, p.90) and Philip et al, (2006, p.77) also identifie s the above four classifications as forms of franchising where all the four were grouped together.Building a strong foundation for a successful franchising strategyA successful franchising concept needfully an appropriate business strategy and lots of facts have been identified as making a business appropriate to be franchised and make it worthwhile to invest in.According to HSBC Bank, (2009, p1), a well established and turn out business format franchise from the franchisee perspective should provide an established market for the franchisors products and services, proven sales, marketing and useable procedures, the benefit of an established business name, training (ongoing support and help in running the business), also, where appropriate, help in finding, fitting out and furnishing premises.Hoffman Prebble (2008, p.68) also add some factors that influence the appropriateness of a business concept using franchising including valuable System to sell, proprietary process/ advanta ge for making the product in getting to the end guests, a ok rat/ trade name like McDonalds which will be unobjectionable to the larger population, and high Profit Margin business.On the other hand, Murray (2004,p.67), shows some possibilities in which capableness franchisee get a proven business format and support from the franchisor, which includes, an perfect business concept with no bits missing out, with the embolden of the operating manuals, trademarks, logos, patents, and standard designs for the layout of the premises, colour and pattern of staff uniforms, accounting and financial systems, training and help to set up the business, continuing help and back-up once the business is operating, licit right to operate in an exclusive territory and marketing, public relations and advertising support, decor in case of retail franchises, the franchisor will provide design and advice for the fitting and decoration of the shop and the innovation of any equipment necessary, rec ords, the franchisor will provide the franchisee with sales report and accounts forms to assist the franchisee take accurate financial report.On the franchisors perspectives, Sherman (2003, p414), explains that in order for business growth through franchising, a secure foundation from which companys franchising programme has to be launched. He uses the concept of the amenable for(p) franchising as the only way to avoid tribulation and to ensure a harmonious relationship with the franchisees. He outlines some of the primal components of a amenable franchising strategy. These includes, proven prototype location/ chains of stores, strong management team, satisfactory capitalization, distinctive and protected trade identity, comprehensive training programmes franchisees, proprietary and proven methods of operation and management, field support staff who are skilled trainers and communicators, set of comprehensive legal documents, demonstrated market petition for the companys pro ducts and services, set of guardedly developed, uniform site selection criteria and architectural standards, authorized understanding of the competition, relationships with suppliers, lenders, real estates developers, franchisee profile and screening system, an effective system of report and record- hold oning, research and development capabilities, communication system, national, regional and local advertising, marketing and so on.Sherman (2003, p.417), went further to acknowledge that Responsible franchising starts with an understanding of the strategic essence of the franchising structure. He identified terce critical components of the franchise systems from the franchisors perspective. The brand, which creates the demand, allowing the franchisee to initially obtain customers, the brand includes the companys trademarks and service marks, its trade dress, decor and all of the intangible factors that create customer loyalty and build brand equity, the operating system, which es sentially delivers the promise, thereby allowing the franchisee to aver customer relationships and build loyalty, the ongoing support and training that the franchisors provide, supplying the franchisee with the tools and tips to expand its customer base and build its market share.Sherman, (2003,) also acknowledges the importance of customers in any responsible franchising business concept. He mentions that the responsibly built franchise system is one that provides value to its franchisees by teaching them how to get and keep as many customers as possible who consume as many products and services as possible, as often as possible,(p.417).He concludes that the focus must ever so be on the customer, where the franchisor essentially licenses and delegates the task of local brand mental synthesis and market expansion to the franchisee in its local territory. (Sherman, 2003, p.417) richness of Franchising To Business Growth and ExpansionFranchising has gained much popularity in modern business environment over the years, because of its success in contributing to business growth and expansion globally which is the primary aim of this research. This can be viewed from the perspective of the franchisee and franchisor respectively.Sherman (2003) acknowledges the growth of a business via business-format franchising in the United States. He maintains that The dexterity to obtain operating efficiencies and economies of scale are among the reasons for franchising and one of the key components of a responsible franchising strategy is a proven type of location that will serve as a basis for a franchising strategy, (p.411).Over the past three decades, franchising has emerged as a popular expansion strategy for a variety of product and service companies. Sherman,(2003), points to the importance of franchising, he states that recent international franchise standstill (IFA) statistics demonstrates that retail sales from franchised outlets comprise nearly 50% of all retail s ales in the U.S, estimated at more than $900 billion and employing some nightspot million people in 2000. (p.411)Also in his view, Sherman,( 2003,p 411), points out to what has do franchising so popular in the U.S. and globally as a business development and expansion strategy, from the franchisors view, franchising represents an efficient method of rapid market sharpness and product distribution, without the typical capital costs associated with internal expansion.On the other hand, from the franchisees perspective, franchising is regarded as a method of owning a business but with a less severe chance of failure due to the initial and ongoing training and support services offered by the franchisor.According to shay (2009, p.6) franchising is the key to orbicular Economic Recovery and that franchise businesses represent some of the worlds best brands. He went on to explain the rate at which fraRole of Franchising in Business GrowthRole of Franchising in Business GrowthCHAPTER ONE INTRODUCTIONINTRODUCTIONFranchising has become one of the most recognizable business formats and an internationalization strategy for business practitioners globally and also in the United Kingdom especially in the way entrepreneurs are operating under other peoples business concept. It has emerged over the years as a popular expansion strategy for a variety of product and service companies.This research critically examines how franchising play vital role in retail business growth and expansion in the food industry, using the Strand Mc Donalds as a case study. The research looks at the importance of franchising, and will be very informative for organizations and stakeholders directly and indirectly involves in franchising business.This chapter looks at the research background, organization background, the research problem, the aim and objectives of the study, the scope and limitations, brief introduction of the study area and the structure of the research.RESEARCH BACKGROUNDFranchi sing is basically a specialized form of licensing in which the franchisor not only leases intangible property (normally a trademark) to the franchisee but also insists that the franchisee agree to abide by strict rules as to how it does business. The franchisor will often assist the franchisee to run the business on an ongoing basis, (Hill 2008.pp 408). It is similar to licensing, although franchising tends to involve longer term commitments than licensing.Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise agreement, namely the Franchisor, who lends his trade mark or trade name and a business system and the Franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisors name and system of operations, technically, the contract binding the two parties is the franchise. Franchising has emerged in recent years as a highly significant strategy for business growth, job creation, and economic development at both local and international retail business arena, (Hoffman Prebble, 1995.p 80). It has moved from traditional product (trade mark) areas such as automobiles, petroleum and soft -drink bottlers to be a more proven format business concept.Over 80% of Mc Donald restaurants worldwide are owned and operated by local businessmen and women. They adapted Ray Krocs franchising business strategy of providing high standard of quality, friendly services, cleanliness and value, (QSCV). Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary growth strategy globally.Of course, the most well known restaurant franchise in the worlds is McDonalds. So much has been written about Ray Kroc and the McDonalds brothers that McDonalds and Crock have become an institution. The first McDonalds were opened in Des Plaines, Illinois, in 1955 and soon afterward, more McDonalds outlets continued to open. Today there are more than 30,000 McDonalds in 118 countries. There is no doubt that when it comes to franchising and fast foods in general, McDonalds is the leader of the pack. (Teixeira, 2005, p. 20).The international franchise association estimates that American consumers spend approximately 1.3 trillion dollars on franchise goods and services on an annual basis. (Teixeira 2005, p.19). This shows that the franchise strategy is one of the important aspects in expanding business and economic development.Different research methods will be used to analyze data/ findings for this research, and the sources of data will include observations and interviews.This research therefore, focuses on the importance of franchising as a business growth and expansion strategy from both the franchisee and the franchisors perspective. It also examines the relationship that exists between the franchisee and the franchisor .The benefits of franchising to Mc Donalds (franchisors) in expanding its business globa lly and its international market position through leveraging its brand name and business process through the utilization of the capital and local management of its franchisees will also be examine in this research.ORGANIZATION BACKGROUNDMcDonalds Corporation (McDonalds) is one of the worlds largest foodservice retailing chain. The company is known for its burgers and fries which it sells through more than 31,900 fast-food restaurants in over 100 countries. The company originated and operates mainly in the US and has expanded globally to over 100 countries including United Kingdom. It is headquartered in Oak Brook, Illinois and employs about 400,000people. The company recorded revenues of $23,522.4 million during fiscal year ending December 2008 (FY2008), an increase of 3.2% over FY2007. The operating profit of the company was $6,442.9 million during FY2008, an increase of 66.1% over FY2007. The net profit was $4,313.2 million in FY2008, an increase of 80.1% over FY2007. (McDonalds C orporation Company profile, (Data monitor) June 2009, p.16)McDonalds restaurants offer a substantially uniform menu, although there might be geographic variations. In financial year 2008, the company operated more than 31,900 fast food restaurants in over 100 countries in the following geographic segments the US Europe Asia Pacific, Middle East and Africa (APMEA) Latin America and Canada.The company is one of the worlds largest food service retailing chain, preparing and serving a range of foods. All McDonalds restaurants offer a standard menu, which comprise food items such as hamburgers, cheeseburgers, chicken sandwiches, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, Chicken McNuggets, French fries, salads, milk shakes, desserts and ice cream sundaes. Some McDonalds restaurants offer additional food items to suit local taste and preferences and sell a variety of other products during limited-time promotions. (McDonalds Corporation Company profile (Datamonitor), June 2009, p. 5)McDonalds generates revenues through company operated restaurants and franchisee restaurants where over 6,500 are operated by the company and over 25,400 are operated by franchisees and affiliates. The companys revenue comprises sales from company operated restaurants and fees as well as rent from franchisees and affiliates. Under the franchise arrangement, the franchisees invest in the equipment, signage, seating and decor, while the company owns or leases the land and building. Franchisees pay the company service fees and rent for premises. A service fee is set as a percentage of sales, while rent and other terms of occupancy are stipulated in the franchise agreement, which is drawn for a period of 20 years. (McDonalds Corporation Company profile, June 2009)The company and its franchisees as well as affiliates source purchase food, packaging, equipment and other goods from approved suppliers. The company maintains quality standards through assurance laboratories around the world . A quality assurance board, including the companys technical, safety and supply chain specialists, provide guidance on all aspects of food quality and safety.The major competitors of McDonalds include Starbucks corporations, Burger Kings Inc, Kentucky Fried Chicken (KFC), and other upcoming high streets food restaurants worldwide. (McDonalds Corporation Company profile, (Datamonitor) June 2009)In October 1974, the company opened its 3000th restaurant and the first in the U.K in woolwich, south-east London, (Business franchise, 2009). The U.K headoffice was sited in Hampstead, North London.Web1 Also in 1986, the first U.K franchisee- operated restaurant opened in Hayes, Middlesex, (Business franchise,2009) and the first Drive-thru restaurants opened in U.K at fallowfield, Dudley, Neasden and Coventry. Web1RESEARCH PROBLEMResearch problem forms the basis of most academic research study. It is based on this that the aim, objectives and the research questions of most dissertations are formulated. There must be identified problems that the dissertation seems to tackle, mostly business problems.Despite the popularity of franchising among business organizations and entrepreneurs nowadays as a business expansion and development strategy, it has been unacceptable to some entrepreneurs because of its disadvantages and risks involved. To these groups of individuals, setting up and management of owned business is the best option, no matter which forms it take to start. The assumption is that franchising is a system of building, expanding and adding value to someone else existing business, which many entrepreneurs will always avoid, as Norman(2006) indicated Many conclude the time, effort, money and shift in emphasis from running a business to helping others run businesses is not right for their companies,(p3)On the other side, some individuals choose franchising as their best option to start up business because of its merits and less risk involved in starting business. T o these pro-franchising entrepreneurs, it plays a major role in business growth and expansion, especially in retail food industry globally.This research, therefore critically examines these arguments and answer the question how is franchising vital to retail business growth and expansion according to the views of the pro- franchising business entrepreneurs.SIGNIFICACE OF THE STUDYTheoretically, a broad range of literature does exist on franchising concepts and in most instances, there seems to be gap between theory and practice in most business organizations. However, it is significant to find out the practicality of the literature in real life situations. It is essential therefore, to carry out this study in order to find out whether in reality the ideas provided by literatures are actually revolving around management issues and applied to business organizations.The findings of this study will assist a wide range of stakeholders interested in franchising business including the gove rnment, private sectors, and local authorities to increase the general understanding and knowledge of franchising particularly in the food sector. To the researchers, academicians, it helps deepen further research in business development who will be interested in franchising in the future.RESEARCH AIM AND OBJECTIVESThe main aim of this dissertation is to investigate how franchising play an essential role in retail business growth and expansion in the food industry.Research ObjectivesIn order to achieve the above stated aim, the following objectives will be specifiedAnalyze the impacts and importance of franchising (business format) on organizations (business) growth and expansion.Assess the benefits of franchised businesses on the socio-economic growth of the economy.To determine whether economic conditions affects the success of franchising as a strategy for business growth and expansion.Investigate the importance of the franchisee-franchisor relationship on the business growth and expansion.Examine the risks involved in the franchising relationship.Examine the effects/impacts of globalization on franchising as a business growth and expansion strategy.To make suggestions and recommendations based on the findings elicited by the study.THE SCOPE OF THE STUDYThe study was carried out in London covering using one of the McDonalds restaurants as the study area. The content of the study was to understand how franchising contributes to business growth and expansion in retail business sector.THE STUDY AREALondon is one of the cities of England it is the capital city of England and the United Kingdom. It has 32 boroughs, of which 13 are in the inner London and 19 constitute the outer London. (Office for National Statistics Online). Web2cited.It is a growing city spreading out and swallowing many villages and towns in the south east of England. Because of this, there are many conflicting definitions of London and Greater London and the population of London varies accor dingly. As the capital city, London occupies over 6,267 square miles (16,043km2). London population is heavily concentrated at about 4,539 people per sq km/ 11,568 per sq mi. Web3According to the figure from the April 2001 census, London population was 7,172,000. This represents 14.6 percent of the total population of Britain. The population as of mid 2005 was thought to have been increased to 7,517,700 of which about half of this figure lives in inner and central London and the remaining lives in outer boroughs. Web 3Londons population has grown every year since 1988, and it is likely that in the years to 2031, it will continue its steady growth. The study area lies in inner London borough of Westminster, which lies in the busy business environment of the city (central business district), It is very close to the seat of power, the parliament, and it is very close to many international business environments, busy London streets, tourist attractions like the London eye, Trafalgar squ are, British museum, National Gallery, National Art gallery, Covent Garden- since its redevelopment in the 1970s has become a popular piazza and nucleus for visitor activity in Londons cultural district with theatre, opera and ballet venues. (Page et al, 2001.p122). London is a multicultural city, where different people from around the world lives and study, it comprises of individuals with diverse cultural background.Because of the above description about the study area, it has become an important area to carry out this research, because of the concentration of other franchised business in the area.STRUCTURE OF THE RESEARCHChapter One (Introduction) This state clearly the purpose of the dissertation, it includes the background of the study, significant of study, the statement of the research problems, organization background, the research aims and objectives, scope and limitations of the study. It also describes the study area briefly.Chapter Two (Literature Review) This section de als with the academic review of texts, journals, articles and so on, relevant to this research topic. It also discusses model and relevant theoretical ideas on the subject matter.Chapter Three (Research Methodology) comprises the methodology used for this study. It includes the styles and techniques chosen in collecting primary and secondary data/ informations for this research purpose.Chapter Four (Data Analysis/ Research Findings) The chapter that report and describes the findings of the survey to be undertaken, it describes both primary and secondary findings.Chapter Five (Conclusions and Recommendations) This chapter set out the main findings of the dissertations linking it with the literature reviews and the research findings. It also sets out clear recommendations which came out of the research work.CHAPTER TWO LITERATURE REVIEWINTRODUCTIONThis chapter provides a review of relevant literatures on franchising. It will be used as a base to throw more light on the importance of f ranchising concept and the roles it plays in business growth and expansion. The literatures were selected and critically evaluated in a bid to sift the relevant informations, and portray the opinions of relevant authors. It offers academic insight to research previously conducted by authors on the importance of franchising to retail business growth. Lastly, the section acknowledges the principal research questions for this study.DEFINITIONS OF FRANCHISING CONCEPTHill, (2008) defines franchising as a specialized form of licensing in which the franchisor not only sells the intangible property (normally a trademark) to the franchisee, but it also insists that the franchisee agree to abide by strict rules as to how it does business, (p.408). It usually involves long term commitments than licensing.On the other hand, Business format franchising is a joint venture between an independent person (the franchisee) and a business owner (the franchisor) who wants to expand its activities. The v enture is governed by a contract. This gives the franchisee the right to operate using the franchisors trade name/ trademark, in accordance with a business format or blueprint. All aspects of the franchisees business are strictly controlled including image, products or service, systems and administration. (HSBC Bank, 2009.p1)The franchisee pays certain amount of money for the right to use the franchisors trademark.Firms use franchise arrangements to extend scarce firm resources, because the franchisee puts up both an initial fee and much of the capital investment, franchisors are able to expand their markets without having to generate capital by themselves, and in most cases exploit on the knowledge of the local entrepreneurs in expanding their business. This is an attractive option, particularly in mass consumer services such as fast food that require the construction of many units to achieve brand name recognition and increased market share like McDonalds Restaurants.BRIEF HISTORY AND DEVELOPMENT IN FRANCHISINGFranchising is highly developed in the USA, although popular in the UK, but a recent phenomenon. Its development dates back to the end of the American civil war (1865), when the singer sewing company franchised exclusive sales territories to financially independent operators. In 1898, General motors used independently owned businesses to increase its distribution outlet. (Lancaster Reynolds, 2005, p160).At some point, there were some form of disagreements and arguments among historians in the United States regarding when the franchise system first started.According to Bythe Bennett,(2008), franchising began to gain acceptance as a viable business arrangement with the growth of automobile industry, and also in the petroleum industry during the 1930s, (p.234)Franchising became one of the fastest growing types of retailing business in the United Kingdom in recent years.It was introduced into the UK in the early 1950s and since those early days, has become respectable and often very profitable business concept as a result of explosion in the number of franchises being operated. Today franchising encompasses products from pipes to pastries and includes such well known names as Body Shop, Kentucky Fried Chicken, McDonalds, and so on. (Lancaster Massingham, 1999, p269).For instance, Over 80% of Mc Donald restaurants worldwide are owned and operated by local entrepreneurs. They adapted Ray Krocs franchising business strategy of providing high standard of quality, friendly services, cleanliness and value, (QSCV). Also in the hotel industry, companies such as Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary growth strategy globally.The first McDonalds were opened in Des Plaines, Illinois, in 1955 and soon afterward, more McDonalds outlets continued to open. Today, McDonalds has over 300,000 restaurants in 119 countries outside the U.S or in non-traditional site locations in the US. There is no doubt that w hen it comes to franchising and fast foods in general, McDonalds is the leader of the pack. Of course, the most well known restaurant franchise in the world today is McDonalds and so much has been written about Ray krok and the McDonalds brothers that McDonalds and Crock have become an institution. (Teixeira, 2005. p.20-21).Teixeira, (2005, p21), indicated that during 1960s and 1970s, the growth of franchise industry exploded and continued to gain appeal with a boom mostly in Europe, on an increased rate, and this has been supported also by welsh (1992) in Doole Robin (2004) franchising has grown rapidly during the 1990s due to the strong interest in a variety of franchise formats, (p.230). These successes remain an ongoing process.According to Ghauri Cateora (2005, p.280), franchising has become the fastest growing market entry strategy, it is often among the first types of foreign retail business to open in the emerging market economies of Eastern Europe, the former USSR, and Chi na.It has become successful as it is evidenced in most retail food business, and it has now become a major business growth and development and marketing strategy globally. It can be viewed from these two perspectives.McDonalds is a good example of organization that has grown with franchising strategy, (Hill, 2008.p.408).Franchising explosion in recent years however has increasingly saturated the domestic market, where businesses are opening in airports, sports stadiums, colleges, hospitals, parks, casinos, pools and other strategic locations globally. (Kotler Keller, 2006.p508)Lastly, the surge in franchising has been underpinned by the efforts of different bodies who regulates the activities of franchised organizations, like the International Franchise Association, (IFA), British Franchising Association, (BFA) various franchising organizations globally, which has developed codes of practice for franchising entrepreneurs, and in doing so, has recorded progress and greatly helped to reduce the risks to both franchisees and the franchisors. (BFA NatWest Bank, 1991).TYPES OF FRANCHISINGMonir (1999 pp.164) identified two major types of franchising in his book. These includeFirst Generation/Product Distribution Franchising simply sells the franchisors products and is supplier-dealer relationships. In product distribution franchising, the franchisor licenses its trademark and logo to the franchisees but typically does not provide them with an entire system for running their business. This is often common with soft drink-bottling industries, automobile, and in petrol retailing.Second Generation/Business format franchising by contrast, the franchisor transfers a much more comprehensive business package (the format) to buyers of the franchisee. This contains most of the elements needed by the buyer to establish and replicate the business. The buyer also receives detailed instructions and guidance on how to operate the franchise successfully, managerial expertise, train ing and perhaps financial support if need be.Diagram 1 Showing Two major types of franchisingThere have been other divisions of franchising as recognized by other authors identified as important for the understanding of this research. Justis Judd, (2007, p.56) identifies two major types of franchising namely product and trade name and business format franchising. Nathan, (2008 p.54) also classifies business format franchising into six major groupings as follows executive, job, investment, management, retail, sales and distribution franchise. Also, on the other hand, Murray (2006, p.23), identifies four major categories as, Job, Retail, Management and Investment Franchising.Franchise ArrangementsBeshel (2001,p3), reiterated that because of the possibilities of so many franchisors, industries and range of investments, there exists different types of franchise arrangements available to business owner. Two types of franchise arrangements were identifiedSingle-Unit(direct) franchiseMult i-Unit Franchise ( Area development and Master development franchise)A single-unit (direct-unit) franchise is an agreement where the franchisor grants a franchisee the rights to open and operate one franchise unit. This is the simplest and most common type of franchise. It is possible, however, for a franchisee to purchase additional single-unit franchises once the original franchise unit begins to prosper, it is then considered a multiple, single-unit relationship.A multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate more than one unit. Beshel (2001, p3), also identifies two ways in which multi-unit franchise can be achievedAn area development franchise orA master franchise.Under an area development franchise, a franchisee has the right to open more than one unit during a specific time, within a specified area. For instance, a franchisee may agree to open 5 units over a five year period in a specified territory, while master franchise agreement gives the franchisee more rights than an area development agreement. In addition to having the right and obligation to open and operate a certain number of units in a defined area, the master franchisee also has the right to sell franchises to other people within the territory, known as sub-franchises. Therefore, the master franchisee takes over many of the tasks, duties and benefits of the franchisor, such as providing support and training, as well as receiving fees and royalties, (Beshel, 2001, p3-4).Blair Lafontaine (2005, p.90) and Philip et al, (2006, p.77) also identifies the above four classifications as forms of franchising where all the four were grouped together.Building a strong foundation for a successful franchising strategyA successful franchising concept needs an appropriate business strategy and lots of facts have been identified as making a business appropriate to be franchised and make it worthwhile to invest in.According to HSBC Bank, (2009, p 1), a well established and proven business format franchise from the franchisee perspective should provide an established market for the franchisors products and services, proven sales, marketing and operational procedures, the benefit of an established business name, training (ongoing support and help in running the business), also, where appropriate, help in finding, fitting out and furnishing premises.Hoffman Prebble (2008, p.68) also add some factors that influence the appropriateness of a business concept using franchising including valuable System to sell, proprietary process/ advantage for making the product in getting to the end customers, a satisfactory brand/ trade name like McDonalds which will be acceptable to the larger population, and high Profit Margin business.On the other hand, Murray (2004,p.67), shows some possibilities in which potential franchisee get a proven business format and support from the franchisor, which includes, an entire business concept with no bi ts missing out, with the aid of the operating manuals, trademarks, logos, patents, and standard designs for the layout of the premises, colour and pattern of staff uniforms, accounting and financial systems, training and help to set up the business, continuing help and back-up once the business is operating, legal right to operate in an exclusive territory and marketing, public relations and advertising support, decor in case of retail franchises, the franchisor will provide design and advice for the fitting and decoration of the shop and the installation of any equipment necessary, records, the franchisor will provide the franchisee with sales report and accounts forms to assist the franchisee maintain accurate financial report.On the franchisors perspectives, Sherman (2003, p414), explains that in order for business growth through franchising, a secure foundation from which companys franchising programme has to be launched. He uses the concept of the responsible franchising as the only way to avoid failure and to ensure a harmonious relationship with the franchisees. He outlines some of the key components of a responsible franchising strategy. These includes, proven prototype location/ chains of stores, strong management team, sufficient capitalization, distinctive and protected trade identity, comprehensive training programmes franchisees, proprietary and proven methods of operation and management, field support staff who are skilled trainers and communicators, set of comprehensive legal documents, demonstrated market demand for the companys products and services, set of carefully developed, uniform site selection criteria and architectural standards, genuine understanding of the competition, relationships with suppliers, lenders, real estates developers, franchisee profile and screening system, an effective system of reporting and record-keeping, research and development capabilities, communication system, national, regional and local advertising, marketin g and so on.Sherman (2003, p.417), went further to acknowledge that Responsible franchising starts with an understanding of the strategic essence of the franchising structure. He identified three critical components of the franchise systems from the franchisors perspective. The brand, which creates the demand, allowing the franchisee to initially obtain customers, the brand includes the companys trademarks and service marks, its trade dress, decor and all of the intangible factors that create customer loyalty and build brand equity, the operating system, which essentially delivers the promise, thereby allowing the franchisee to maintain customer relationships and build loyalty, the ongoing support and training that the franchisors provide, supplying the franchisee with the tools and tips to expand its customer base and build its market share.Sherman, (2003,) also acknowledges the importance of customers in any responsible franchising business concept. He mentions that the responsibl y built franchise system is one that provides value to its franchisees by teaching them how to get and keep as many customers as possible who consume as many products and services as possible, as often as possible,(p.417).He concludes that the focus must always be on the customer, where the franchisor essentially licenses and delegates the task of local brand building and market expansion to the franchisee in its local territory. (Sherman, 2003, p.417)Importance of Franchising To Business Growth and ExpansionFranchising has gained much popularity in modern business environment over the years, because of its success in contributing to business growth and expansion globally which is the primary aim of this research. This can be viewed from the perspective of the franchisee and franchisor respectively.Sherman (2003) acknowledges the growth of a business via business-format franchising in the United States. He maintains that The ability to obtain operating efficiencies and economies of scale are among the reasons for franchising and one of the key components of a responsible franchising strategy is a proven type of location that will serve as a basis for a franchising strategy, (p.411).Over the past three decades, franchising has emerged as a popular expansion strategy for a variety of product and service companies. Sherman,(2003), points to the importance of franchising, he states that recent international franchise association (IFA) statistics demonstrates that retail sales from franchised outlets comprise nearly 50% of all retail sales in the U.S, estimated at more than $900 billion and employing some nine million people in 2000. (p.411)Also in his view, Sherman,( 2003,p 411), points out to what has made franchising so popular in the U.S. and globally as a business development and expansion strategy, from the franchisors view, franchising represents an efficient method of rapid market penetration and product distribution, without the typical capital costs assoc iated with internal expansion.On the other hand, from the franchisees perspective, franchising is regarded as a method of owning a business but with a less severe chance of failure due to the initial and ongoing training and support services offered by the franchisor.According to Shay (2009, p.6) franchising is the key to Global Economic Recovery and that franchise businesses represent some of the worlds best brands. He went on to explain the rate at which fra