Introduction
Franchising is a contemporary business strategy that many organizations are applying to build their presence in foreign markets (Hoy, Perrigot, & Terry, 2017). Franchising is a distribution system of autonomous business relationship that not only enables sharing of brand identification but as well providing a robust marketing and distribution network. This strategy is based on a mutual agreement between two companies that is the franchisor and the franchisee. In order to enter in foreign markets with low degree of resource commitment and risk, Bloc Digital can make use of this strategy. Apart from offering licenses and rights, Bloc Digital can assist the franchisee further by marketing, equipment, organizing, and designing. Through franchising, Bloc Digital will benefit from a swift growth as the franchisees will utilize their own capital to set up its facilities. However, there are some downsides associated with this market entry strategy that Bloc Digital should put into consideration before implementing it.
Critical Evaluation
Through franchising, Bloc Digital will grow, reduce the risk of failure, establish a market share, develop its brand, and reduce its operation costs in foreign markets. Establishing agreements with other reputable businesses in the global business arena can be a cost-effective approach to growing Bloc Digital. The company will not be impelled to cover the costs of investing in new staff or premises as the franchisee will incur all those expenditures. Besides, additional sales in foreign markets will mean additional profits for Bloc Digital and if it retains this in the long term, it will have a saleable asset for its future (Chen, 2018). Moreover, by franchising, this company will lessen the risk of failing while launching its services in oversea markets. Since the business will be based on a proven idea, Bloc Digital can consistently check how viable other franchises are prior to committing itself. Nevertheless, the management will gain a competitive market share without necessarily testing the market (Sun, & Lee, 2019). In order to guarantee itself a successful franchise, this firm can use recognized brand names and trademarks. In so doing, it will benefit immensely from any promotion or advertising the franchisee will undertake (Lopes, 2020). Other benefits that will accrue to Bloc Digital by executing a franchise include support from other companies, idea of future success, economies of scale, purchasing power, and establishment of robust relationships with stakeholders in foreign markets.
Despite its effectiveness, franchising has its shortcomings that Bloc Digital should consider before embracing it as a market entry tool. For example, the cost may be higher than the firm would anticipate. The initial cost of purchasing the franchise can be exceedingly high and even after investing in the agreement; the deal will require Bloc Digital to continuously invest in time and capital (Emerson, & Trautman, 2019). As a franchisor, this company will be launching its services in a new market outside UK and over time it will be required to invest in its franchise system. Apart from costs, there are some regulations that the business might be obliged to comply with. Franchising is a controlled industry and before offering or selling a franchise, Bloc Digital will be required to work with franchise lawyers in order to come up with a franchise offering encompassed of a Franchise Disclosure Document (FDD) (Karp, & Stern, 2016). In the process, the company will need to conform to state and federal franchise laws. In addition, it is worth noting that there is less control in franchising compared organic expansions where a company owns every location (Hajdini, Klapper, Rommer, & Windsperger, J. 2017). Franchising normally means giving another party control over your business and if Bloc Digital will execute it as a market entry, it should be ready to give up some level of control over its rights and negotiation power. Whilst the franchisees will be completing training and meeting Bloc’s standards and specifications in foreign markets, ultimately they will need to have substantial voice in Bloc’s business operations. It will also require a significant period of time for Bloc Digital to build a franchise system. The success of its initial number of franchisees shall dictate the trajectory and growth of its new franchise system.
Conclusion
Franchising is one of the most successful and success market entry models in the contemporary business environment. Before implementing this strategy, however, Bloc Digital should evaluate both the benefits and setbacks based on its goals in the foreign markets. If franchising is right for business, its benefits far outweigh the drawbacks and thus the company should adopt it.
References
Chen, Y.S., 2018. E-Business and Big Data Strategy in Franchising. In Encyclopedia of Information Science and Technology, Fourth Edition (pp. 2686-2696). IGI Global.
Emerson, R.W. and Trautman, L.J., 2019. Lessons About Franchise Risk From Yum Brands and Schlotzsky’s. Available at SSRN 3442905.
Hajdini, I., Klapper, H., Rommer, P. and Windsperger, J., 2017. Control and performance in franchising networks. In Management and governance of networks (pp. 35-56). Springer, Cham.
Hoy, F., Perrigot, R. and Terry, A., 2017. Research contributions to understanding franchising. In Handbook of Research on Franchising. Edward Elgar Publishing.
Karp, E.H. and Stern, A.N., 2016. A Proposal for a Mandatory Summary Franchise Disclosure Document. Franchise Law Journal, 35(4), pp.541-576.
Lopes, L.C., 2020. Franchising as a catalyst for conscious capitalism in retail: an exploratory study on the benefits in franchising chains (Doctoral dissertation).
Sun, K.A. and Lee, S., 2019. Competitive advantages of franchising firms and the moderating role of organizational characteristics: Evidence from the restaurant industry. International Journal of Hospitality Management, 77, pp.281-289.
