به سوی یک مدل استراتژیک گسترش فرانشیز (فرانچایز) جهانی

This paper develops the first global index of international franchise expansion that ranks countries according to their attractiveness to US-based franchise firms. A quantitative model combining insights from academic research and business practice generates a ranking of 143 potential expansion target countries according to their risk/opportunity profiles. The rankings suggest that countries with large markets and strong political and legal systems (large European countries, and Canada, Japan, and Australia) are the most attractive for US-based franchisors, while the small, unstable African countries are the least attractive. China (and the other BRIC countries—Brazil, Russia, India) though attractive from a market opportunity perspective, is nevertheless not highly ranked due to their significant risks and large cultural and geographic distances. This study reaffirms the importance of a strategic approach to international franchising decisions, underscores the importance of properly assessing the relative importance of key determinants in internationalization decisions, highlights the importance of a comprehensive and systematic assessment of the various risks in international franchising decisions, shows the usefulness of quantitative modeling in international franchising, and advocates the development of effective risk management methods in order to cope with rapid changes in the global marketplace.

Recent changes in the US and global economies have had a significant impact on how US-based franchise firms do business. Over the past four decades, the reduction of trade barriers, saturation of domestic markets, advances in communication and transportation, improved foreign economic conditions, and enhanced currency convertibility have provided strong incentives for US-based franchise firms to consider expanding their businesses to foreign markets (Justis and Judd, 2003, Alon, 2006 and Aliouche and Schlentrich, 2009). Internationalization is now considered an essential strategy for an increasing number of US franchise firms. From 1971 to 1985, US-based franchise firms expanded overseas units at a rate of 17 percent per year (Justis and Judd, 2003). According to a survey of members of the International Franchise Association, 52 percent of US-based franchise firms had units outside the United States in 2006, compared with 34 percent in 1989. In addition, 79 percent of the respondents intended to enter or expand into the European Union within 3 years, representing a 70 percent increase from 1989 (Schlentrich and Aliouche, 2006). Recently, a number of theoretical and empirical studies have attempted to explain the internationalization process of franchise firms. Though these studies have greatly improved our understanding of international franchising and foreign market entry mode selection, important issues remain. The extant research has been largely descriptive. Though understanding why and how franchise firms expand internationally is important, it is of limited practical assistance to franchise executives faced with the daunting challenges of expanding their operations internationally.2 Most past studies have addressed one of two aspects of the international franchise expansion challenge—why expand (motivation to go international) or how to expand (selection of mode of entry), while where to expand (selection of target countries) is seldom fully addressed. A more comprehensive, strategic approach may be beneficial for both franchise scholars and practitioners. Aliouche and Schlentrich (2009) proposed a prescriptive three-phase model of international franchise expansion that addressed the two strategic questions faced by a franchisor planning expansion into foreign markets3: 1.Where should we expand to? (determination of the optimal target countries). 2. How should we enter into these priority target countries? (determination of optimal entry mode). Focusing initially on the first question (where), Aliouche and Schlentrich (2009) developed a methodology to operationalize the main determinants of international franchise expansion decisions and produced a ranking of the 25 European Union countries according to their attractiveness from a macro opportunity/risk perspective. The present study aims to extend this line of research with three important contributions. Based on the results of academic research, the model proposed in Aliouche and Schlentrich (2009) lacked an explicit link to actual franchise practice. The present study addresses this limitation by integrating the real life experiences and opinions of franchise executives into the model. Opinions of franchise executives with extensive international experience were collected via an online survey that was complemented with face-to-face and phone conversations. These executives represented 104 franchise firms with a total of 165,559 units globally. The survey helped validate the selection of the key internationalization drivers and helped provide a way to gauge the relative importance of each driver. It allowed the linkage of theoretical analysis and actual franchise practice, a linkage that was missing in Aliouche and Schlentrich (2009) and other studies. The learning that comes with years of dealing first-hand with the opportunities, challenges, successes and failures of international expansion makes franchise executives’ opinions invaluable. By including input from seasoned franchise executives, the present study improves the practical relevance of the original model. Most previous studies, including Aliouche and Schlentrich (2009) implicitly assigned an equal importance to the key determinants of internationalization decisions. The current study explicitly illustrates that the various key factors in internationalization decisions have different relative influences, and that ignoring this fact (for example, by assigning equal weights to all factors, the practice of most past studies), may lead to a suboptimal selection of expansion markets. In an equally weighted model, small but relatively less risky countries (such as Switzerland and Denmark) would appear more attractive as expansion markets, while large but relatively more risky countries (such as China and India) would appear less attractive. This study goes a long way in addressing this shortcoming of previous studies by explicitly assigning relative weights to the various drivers. Aliouche and Schlentrich (2009) focused on the EU countries only. The present study has a much wider scope. Though the EU is an important region of the world, other countries are also of interest to US franchisors. The present study creates a comprehensive international franchise expansion index that ranks all countries that have publicly available data (143 countries in 2009). This index is to our knowledge the first global index of international franchise expansion available in the academic literature and business practice. This index provides franchise practitioners a guide to where the optimal franchise expansion markets may be. Globally, the index identifies the United Kingdom, Canada, and Germany as the most attractive international expansion markets for US-based franchise firms, and the Central African Republic, Guinea Bissau, and Liberia as the least attractive countries. The proposed international franchise expansion model is presented in the section “The international franchise expansion model”. The methodology used to carry out this study is presented in the section “Methodology”. Section “Results and discussion” reports and discusses the results of the global index of international franchise expansion. Section “Conclusions and implications”) summarizes the results of the study and presents a number of managerial and theoretical implications.

The present study makes three important contributions. First, it develops a conceptual and analytic framework that integrates academic research and business experience in internationalization decisions. This results in a quantitative model that can be used to objectively determine the relative attractiveness of a large number of countries as franchise expansion markets. Second, it highlights the importance of explicitly assessing the relative influence of the key determinants of internationalization decisions. Past studies have not explicitly addressed this important issue, and have therefore assigned by default equal weights to the key determinants. This study has showed that, even though a very accurate weighting scheme may not be necessary to obtain useful results, not using a reasonable weighting scheme will most likely result in a suboptimal selection of international expansion markets. The study of the relative importance of the various determinants of international franchise expansion decisions appears, therefore, to be an important area for international franchising research. Third, this study has created a comprehensive international franchise expansion index that ranks 143 countries according to their attractiveness as expansion markets. This index is to our knowledge the first global index of international franchise expansion available in the academic literature and business practice. This study has a number of managerial and theoretical implications. First, it underscores the need for a strategic approach to international franchising decisions. Ad hoc decisions based on past practices, reactions to events, emotions, etc., may not allow a firm to achieve its strategic and financial objectives in an optimal way. There needs to be an explicit link between the strategic and financial objectives of the firm and the selection of the optimal expansion target countries. Franchise firms do not generally have the financial and human resources to enter a large number of international markets simultaneously. Franchise executives can use the model developed in this study to strategically select the optimal international expansion markets in a time-efficient and cost-effective way. Furthermore, this model provides franchise managers a decision-making tool to assess in an objective and consistent manner the often very dissimilar countries they may be considering for entry or expansion. The highest ranked countries identified by this model are the countries that are of most interest to profit maximizing and shareholder value maximizing firms, as these countries have the best risk/opportunity profiles. This study underscores the role of risk and risk management tools in international expansion decisions. China and the other BRIC countries (Brazil, Russia, and India) have been attracting growing interest from many US firms in recent years. However, when risks are explicitly taken into account (as the proposed model does), the relative attractiveness of these countries (at least from a macro opportunity/risk perspective) is reduced. Because of the prevalence of risk in international expansion ventures, franchise managers need to develop effective risk management tools to assess and mitigate these risks. Additionally, as very recent history has shown, global political, economic, legal, and social conditions constantly change, sometimes dramatically, necessitating the frequent reassessment of country attractiveness. The dynamic nature of the global marketplace further underscores the need for effective risk management tools in international franchise expansion projects. Aside from these defensive benefits, an additional advantage of having effective risk management tools is that when firms are confident about their risk mitigation capabilities, they may be more willing and able to enter and expand into risky countries if the market opportunities are large enough. The choice of entry mode may be one way to mitigate risks as some entry modes are more vulnerable to risks than others. Another implication of this study is that, because of their very poor risk/opportunity profiles, most African countries will most likely not attract US-based franchise firms in the foreseeable future. Countries that aim to attract foreign franchisors need to improve their political, economic, legal, and regulatory institutions. This study also has theoretical implications. Though it shares the Uppsala internationalization model's concern for risk, it comes to different implications and recommendations. The Uppsala model's implication that firms expand first to psychically close countries is mostly motivated by risk aversion. The importance of the potential market opportunity is understated. Neglecting very large opportunities because of their perceived risks may not be optimal as some opportunities are so large that they may be worth pursuing despite the risks. The important point, as is well known in financial investment theory and practice, is that it is the risk/opportunity trade-off that determines the optimal decision, not risk alone or opportunity alone. Unlike the Uppsala model, the present study implies that firms expand to foreign countries that have the optimal combination of market opportunities, market risks, and distance. This study thus improves the Uppsala model. We can expect that as countries reform their political, economic, legal, and regulatory systems to become more globally competitive, the differences in market risks among many countries will be reduced, thus enhancing the importance of market opportunity in future international expansion decisions. China is a good example of a country that has moved a long way in this direction since launching its Open-Door Policy in 1979. The Uppsala model accords a paramount role to psychic distance in firms’ internationalization decisions. Distance (cultural and geographic), a term related to psychic distance, is taken into account in the present study. However, its importance in international expansion decisions is dwarfed by the role of market opportunity and other market risks. Furthermore, it can be expected that the importance of distance in international expansion decisions will diminish in the future, as globalization and technological advances (especially in transportation and communications) spread and bring our world closer. The dominant internationalization theories recognize the importance of market risks and distance in the choice of foreign market entry. The Uppsala model asserts that because of the risks inherent in psychically distant markets, firms will tend to first favor low commitment modes of entry such as exporting and licensing, while the transaction cost analysis model proposes that in volatile environments, low control entry modes may be more optimal. The framework proposed in this study suggests that the optimal mode of entry is determined by the interaction of the macro factors (market opportunity, market risks, and distance) and micro-level country, industry and firm-specific factors. We propose that, everything else being the same, different categories of risks will imply different optimal entry modes. Everything else being the same, higher political/economic risks may imply that low commitment and low control entry modes may be optimal. However, again everything else being the same, high legal/regulatory risks may make high commitment and high control modes of entry such as ownership the more optimal choice. This proposition will be addressed fully in a separate study of Phase Three (entry mode) of the model. The methodology presented in this study presents a number of benefits for scholars and practitioners. It allows the bringing together of a diverse set of variables (population size, political risk, culture, etc.) into one coherent and comprehensive model. In addition, the quantification and explicit modelization of the main determinants of international franchise expansion decisions allow the objective and consistent assessment of the tradeoffs between the advantages of international franchise expansion (opportunity) and its disadvantages (market risks, distance). This methodology may also be useful for scenario testing where an input to the model (example, political/economic risk or a given weight) is changed to see the impact on country attractiveness. Further research on quantitative modelization techniques may lead to better methods to assess and mitigate risks. This study has shown that the relative importance accorded to each of the key factors in international expansion decisions can have a determining influence on the choice of foreign expansion markets. The relative weights used in this study are averages at a given time. It can be expected that they will be different at different times, and for different firms. More research on how individual firms adapt the relative importance of various determinants of international franchise expansion decisions to changes in the global environment and to their own resources and strategies may be valuable. This may help shed more light on why firms expand internationally, where they go, and how they expand overseas. The present study has a number of limitations. First, it addresses only one aspect of the international franchise expansion process (macro-environmental assessment, Phase One). Though this phase helps narrow significantly the number of potential targets to consider, a micro-environmental assessment and entry mode evaluation are also needed to determine the optimal expansion country and the optimal mode of entry. A worthwhile extension of the research developed in this paper is to conduct industry level and firm level analysis in order to have a complete model that would assist franchise firms identify their own specific optimal international expansion targets. The authors are actively working on this extension. Another evident limitation of this study is its focus on US-based franchise firms. Expanding this study to franchise firms from other countries may lead to further insights. The use of a survey also presents limitations. The survey does not report separately results from franchise executives with successful international expansion experiences and those with unsuccessful ones. In addition, like all studies using the survey method, this study relies on self-reported responses by franchise executives instead of hard data on franchisors’ actual experiences. Another limitation is that this study does not provide an empirical test of the proposed model. A valuable extension of the present study would be to use statistical methods to test the predictive performance of the model proposed in this study. This has not been done yet due to a lack of data. We are now collecting data on the international expansion experiences of a large number of US franchise firms. Once we have enough data to be able to conduct a meaningful analysis, we are planning to statistically test the predictive performance of the model. Executive summary A US franchise firm trying to increase its profits by expanding overseas has the daunting task of selecting among over 200 different countries. Some firms may select expansion countries based on past experience (“we already have some units there, so we should build more units there…”), reactions to events (“our competitor just opened new units there, so we must do the same”), emotions (“we have relatives there, so it is a good place to expand to…”), or other ad hoc reasons. Many more firms focus mainly on the market size of the countries, with larger countries such as China being most attractive to them. However, different countries have different political, economic, legal, and regulatory systems than the US systems these firms are used to. Also, different countries may have very different cultures, and may be geographically far from the United States. All these factors make expanding to foreign countries risky for US firms, with a real possibility of incurring losses instead of making profits. It then behooves US firms contemplating international expansion to adopt a strategic approach where opportunities as well as risks are clearly identified and considered. This study proposes such an approach. It develops a mathematical model that produces a ranking of all countries according to the size of their market potential, their level of risk, and their distance from the United States. Market potential is measured by the size of their population and how much money citizens of that country have to spend. Market risks include political risks (for example, wars and strikes), economic risks (for example, high inflation), legal risks (for example, non-enforcement of legal contracts), and regulatory risks (for example, government mandated changes in business practices). Distance includes how different the culture of the host county is from US culture, and how far physically is the host country from the United States. The mathematical model used in this study takes all of these elements, assigns a level of importance (weight) to each one of them, and produces a ranking of 143 countries according to how attractive they are to US franchise firms seeking to expand their business overseas. This study finds that the three most attractive countries are the United Kingdom, Canada, and Germany, while the least attractive countries are the Central African Republic, Guinea Bissau, and Liberia. In general, this study suggests that countries with large markets and strong political and legal systems (large European countries, and Canada, Japan, and Australia) are the most attractive for US-based franchise firms, while the small, unstable African countries are the least attractive. An interesting finding of this study is that some of the largest and fastest growing countries (such as China, India, Russia, and Brazil) should not be the ones that US franchise firms focus on first. These countries may have large and fast growing markets, but they are also riskier places to do business.