An Examination of International Retail Franchising in Emerging Markets

By Welsh, Dianne H. B.; Alon, Ilan et al. | Journal of Small Business Management, January 2006 | Go to article overview

An Examination of International Retail Franchising in Emerging Markets


Welsh, Dianne H. B., Alon, Ilan, Falbe, Cecilia M., Journal of Small Business Management


There has been an urgent call from both the franchise industry and the academic community for research on world franchising markets, specifically in the retail sector. This article is an attempt to summarize the main research that has been conducted thus far on international retail franchising. The article begins with an overview of the development of the literature and then discusses the nature and scope of emerging markets, with particular reference to their impact on the stakeholders of international retail franchising. Next, the article develops a conceptual model relating international retail franchising to its stakeholders. Then, a review of the research is divided into the areas of emerging world market: Central and Eastern Europe, Mexico and South America, Asia, and other areas that include India, Kuwait, and South Africa. The article concludes by discussing the next step to developing a research base for further understanding of emerging markets in addition to the opportunities and challenges for retail franchising and future research.

Introduction

Explaining the phenomenal growth of retail franchising in the United States and the United Kingdom has been a major focus in the academic franchising literature over the past three decades. U.S. franchising sales increased approximately 94 percent from 1983 to 1993 (Hoffman and Preble 1995). Figures vary, but it is estimated that U.S. franchising generates $800 billion worth of business in gross sales and represents 40 percent of the retail trade (Swartz 2001). According to Shane and Spell (1997), retail franchising "has become the dominant mode of retail entrepreneurship in the United States." Retail franchising is an important and growing component of the United Kingdom economy as well (Boyle 1999). The number of franchising systems in the United Kingdom increased by 30 percent between 1994 and 1997 (Boyle 1999). Clarke (1997) estimated that if franchising was considered in its broader context to include tenanted pubs, petrol stations, car dealerships, and soft drink bottlers, the total annual franchise sales in Britain would be worth 33.3 billion pounds and make up around 19 percent of all retail sales in the United Kingdom (Boyle 1999).

In the United States, Canada, and parts of Western Europe, retail franchising has reached domestic market saturation, while emerging markets remain relatively untapped. Retail franchises have been established in these markets primarily in the last 15 years through master franchises and corporate franchise agreements, and to a lesser extent, joint-venture franchising and conversion franchising (Hoffman and Preble 2003; Alon and McKee 1999; Connell 1999; Doherty and Quinn 1999; Hadjimarcou and Barnes 1998). Emerging markets, which account for 80 percent of the world's population and 60 percent of the world's natural resources, present the most dynamic potential for long-term growth to businesses, in general, and to franchisors, specifically. The U.S. Department of Commerce estimated that over 75 percent of the expected growth in world trade over the next two decades will come from emerging countries, particularly big emerging countries, which account for over half the world's population but only 25 percent of its gross domestic product (GDP).

Emerging markets are among the fastest growing targets for investment by international franchisors. Several surveys conducted by industry experts showed that more and more franchisors are seeking opportunities in these markets. A recent article in Franchising World stated, "Franchises are springing up in the most unlikely, and for many of us unheard-of, places.... Those franchisors who can establish a beachhead on these wilder shores could do very well, but the risks are great" (Amies 1999, pp. 27-28).

A number of authors, both industry analysts and academics, have identified emerging markets as a topic that needs further research (Kaufmann and Leibenstein 1988). …

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