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DOES FRANCHISING PLAYS MAJOR ROLES IN BUSINESS
DEVELOPMENT AND EXPANSION IN FOOD AND
HOSPITALITY INDUSTRY: A CASE ANALYSIS OF THE
STRAND MC DONALDS? LONDON.
BY
LATEEF OLUSHOLA SALAMI
MBA (INTERNATIONAL BUSINESS)
0692KDKD0209
Being a research proposal submitted to the London
School of Commerce (LSC) in partial fulfillment of the
requirements for the degree of
MASTER OF BUSINESS ADMINISTRATION DEGREE
(MBA)
UNIVERSITY OF WALES INSTITUTE CARDIFF
UWIC, WALES
AUGUST, 2009.
TABLE OF CONTENTS
Front Cover…………………………………………………………………………1
Table of Contents…………………………………………………………………..2-3
Provisional Title…………………………………………………………………….4
Abstract…………………………………………………………………………….5
1.0 Introduction………………………………………………………………………...6
1.1 Background of the study…………………………………………………………...6-7
2.0 Brief Review of Literature…………………………………………………………7
2.1.1 Definition of franchising………………………………………………………..7-8
2.1.2 Brief history and Development of franchising…………………………………8-9
2.1.3 Types of franchising……………………………………………………………9
2.1.4 Franchise Arrangement………………………………………………………..9-10
2.1.5 Important of franchising to Business Development…………………………..10-11
2.1.6 Franchising Profitability………………………………………………………11
2.1.7 Possible Risk in Franchising…………………………………………………..11-12
2.1.8 Socio-economic Impact of franchising………………………………………..12-13
2.1.9 Franchisee-franchisor Relationship……………………………………………13
3.0 Significance of the Study………………………………………………………....14
4.0 Research Aims and Objectives………………………………………………….....14
4.1 Research Questions………………………………………………………………...15
5.0 The Scope and Limitations of the Study………………………………………….15
6.0 Statement of Design and Methodology……………………………………………16
6.1 Research Methodology…………………………………………………………….16
6.1.1 Population……………………………………………………………………….16
6.1.2 Reliability and Validity………………………………………………………….16
6.1.3 Sampling…………………………………………………………………………16
7.0 Sources and Acquisition of data……………………………………………………16
7.1 Questionnaires…………………………………………………………………….16-17
7.2 Structured Interviews……………………………………………………………...17
7.3 Participant Observation…………………………………………………………….17
7.4 Editing and Coding………………………………………………………………...17
8.0 Method of Data Analysis……………………………………………………………….17
8.1 Qualitative Analysis………………………………………………………………...17
8.2 Quantitative………………………………………………..……………………...17-18
9.0 Forms of Presentation…………………………………………………………………18
10.0 Time-Table…………………………………………………………………………….18
11.0 References……………………………………………………….………………….18-19
12.0 Bibliography……………………………………………………….………………..20-21
PROVISIONAL TITLE:
DOES FRANCHISING PLAYS MAJOR ROLES IN BUSINESS DEVELOPMENT
AND EXPANSION IN FOOD AND HOSPITALITY INDUSTRY: A CASE ANALYSIS
OF THE STRAND MC DONALDS? LONDON.
ABSTRACT
There are varieties of market entry strategies from which an entrepreneur can choose,
including, franchising (business format), licensing, joint venture, direct exporting, indirect
exporting, contracting, and investments, with their advantages and disadvantages, depending
on company strengths and weaknesses, the degree of commitment of the company and market
characteristics.
Franchising is a joint venture between an independent person (the franchisee) and a business
owner (the franchisor) who wants to expand its activities .Franchising involves a franchisor
selling the right to use a company’s trademark and business format to a franchisee in return
for an initial fee and loyalty payment. It is another contractual form of internationalizing.
The overall purpose of this study will offer a comprehensive overview of franchising in food
and hospitality industry in United Kingdom, its critical relevant for business development,
expansion and growth. This research will examine the current status and performance of the
strand McDonalds and its relationship to other franchisor in food and hospitality industry in
United Kingdom.
Informations collected for this research work will be kept in confidential and will be use only
for the purpose of this research. Permissions will be obtained from the strand McDonalds
before the commencement of this work and the respondents will be treated with respects.
Data collection for this research will base on the primary and the secondary sources. The
primary sources will includes use of questionnaires, oral interviews, participant observations,
and so on, while the secondary sources will includes informations from business agencies,
online journals, newspapers, articles, different textbooks will be reviewed to gain a wider
scope and understanding of franchising in relationship to business development. Data will be
collected and analyzed to come up with different alternatives for promoting franchising as
business strategy development.
The researcher believe that the outcome and perspective of this research will lend a hand to
entrepreneurs, shareholders, and stakeholders, and academics in gaining an insight into the
important of franchising as a business development and expansion strategy, and also to as
well compare other methods like licensing, joint venture,contracting,exporting(direct and
indirect) and so on.
1.0 INTRODUCTION
Franchising has become one of the most recognizable business formats in the world, more in
the United Kingdom especially in the way entrepreneurs are operating under other people’s
business.
This research will critically examine franchising and its roles in business development and
expansion, in food and hospitality industry, using the Strand Mc Donald’s as a case study. It
looks at the roles of franchising in business expansion and development.
This proposal looks at the importance of franchising, aim and objectives of franchising as a
market entry strategy, research questions, i.e what the study intends to find out.
Different methodologies will be used to analyze data for this research, and the sources of data
will include questionnaires, observations and interviews. The significance and importance of
franchising will be looked at in this research to determine the advantages and disadvantages
of franchising in the business world.
1.1 BACKGROUND OF THE STUDY
Franchising is similar to licensing, although franchising tends to involve longer term
commitments than licensing. It’s basically a specialized form of licensing in which the
franchisor not only sells 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).
Franchising is a method of distributing products or services. At least two levels of people are
involved in a franchise system (1) the Franchisor, who lends his trade mark or trade name and
a business system; and (2) the Franchisee, who pays a royalty and often an initial fee for the
right to do business under the franchisor’s name and system .Technically, the contract
binding the two parties is the franchise.
Franchising is a growing method of business expansion, both at domestic and globally. It is
becoming a major catalyst for economic growth, employment and development not only in
the United Kingdom but also in the international market place (Aydia and Kacker 1990).
Franchising has moved from traditional product (trade mark) areas such as automobiles,
petroleum and soft –drink bottlers to the standard industries of fast food. Over 80% of Mc
Donald restaurants worldwide are owned and operated by local businessmen and women.
Other pioneers adapted Ray Krol’s franchising business strategy of proving high standard of
quality, friendly services, cleanliness and value. In the hotel industry companies such as
Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary growth
strategy.
The most well known restaurant franchise in the worlds is McDonalds. So much has been
written about Ray Crock 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 McDonald’s 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.pp 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.pp19).This shows that the franchise strategy is one of the important aspects in
expanding business and economic development.
This research focuses on the importance of franchising as a business development/expansion
strategy and the benefits of Mc Donald in expanding rapidly its international market position
through leveraging its brand name and business process and utilizing the capital and local
management of its franchisees.
2.0 BRIEF REVIEW OF LITERATURE
The literature review will be used as a base to throw light on the concept of franchising and
the roles it plays in business development. The literature will be selected and critically
evaluated in a bid to sift the relevant information, and portray the opinions of the relevant
writers.
The literature will offer academic insight to experiences and research previously conducted
by authors about the subject matter. The literature review would be structured into the
following:
2.1.1 Definitions of Franchising
It’s a specialized form of licensing in which the franchiser 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. It usually involves long term commitments
than licensing.(Hill,2008).
Monye (1997), also defines business format franchise as a total business concept. It includes
both marketing of goods identified by a brand name and trademark and the preparation of a
blue print of all aspects of conducting a successful business including site selection,
equipments supply, training, techniques for preparation products/services, marketing,
publicity an customer care service.
2.1.2 Brief History and Development in Franchising
Franchising is highly developed in the USA, although popular in the UK, but a recent
phenomenon. Its development dates back to the end of 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).
It became one of the fastest growing types of retailing in the United Kingdom in recent
years.It was introduced into the UK in the early 1950’s.However, since those early days
franchising has become respectable and often very profitable 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, and
McDonalds. (Lancaster &Massingham,1999).
Teixeira,(2005),indicated that during 1960s and 1970s,the growth of franchise industry
exploded and continued to gain appeal with a boom mostly in europe.
There has been more growth in franchising, and according to welsh(1992) in Doole
&Robin(2004),franchising has grown rapidly during the 1990s due to the strong interest in a
variety of franchise formats and this remain an ongoing process.
According to Ghauri & Cateora (2005), 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 China.
Franchising has been really successful as it is evidenced in most retail, food and hospitality,
automobile business, and it is now became a major business development and international
marketing strategy globally. It can be viewed from these two perspectives, (Reynolds P.
2009).
McDonalds is a good example of organization that has grown using franchising strategy,
(Hill ,2008.pp 408).Franchising explosion in recent years, however has increasing saturated
the domestic market.Today,McDonalds has over 300,000 restaurants in 119 countries outside
the US or in nontraditional site locations in the US. Franchises are opening in airports, sports
stadiums, colleges, hospitals, parks, casinos, pools and other strategic locations globally.
(Kotler &Keller, 2006)
The surge in franchising has been underpinned by the efforts of the International Franchise
Association, and also British Franchising Association, which has developed codes of practice
for franchising, and in doing so has greatly helped to reduce the risks to both franchisee and
the franchisor.(BFA&NatWest Bank,1991).
2.1.3 Types of Franchising
Monir (1999) pp.164 identified two major types of franchising in his book. These includes:
First Generation/Product Distribution Franchising simply sells the franchisor’s 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, also managerial expertise, training and perhaps financial support if need be.
Murray (2006) identified four types of franchising including Job Franchising, Retail
Franchising, Management Franchising and Investment Franchising.
2.1.4 Franchise Arrangements
Beshel (2001) pp 3, 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. She identifies two types of franchise arrangements:
• Single-Unit(direct) franchise
• Multi-Unit Franchise
Area development
Master Franchise (Sub Franchising)
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. This 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.
There are two ways a multi-unit franchise can be achieved:
• An area development franchise or
• A 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 example, a franchisee may agree to open 5
units over a five year period in a specified territory.
A 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.
2.1.5 Important Of Franchising To Business Development
Franchising has gained much popularity in modern business world over the years, because of
its success in contributing to business development and expansion which is the primary aim
of this research. Some of which were identified as reasons why entrepreneurs prefers to
franchise instead of setting up one business including: many options to reach great results,
replicating their success in other markets, raising capital, and expanding through the chain
method.
According to HSBC(2009),other roles of franchising to business development were identified
as follows:
• Proven Format-The franchisee enjoy the advantages of an established business,
such as a tried and tested product /service, set of established operational
guidelines and so on.
• Trade Name-Particularly where a franchise operation is well established.
Customers will be familiar and comfortable with the product or service that are
been offered.
• Training and Support-The franchisee is trained in all aspects of the operation
including product knowledge, customer service standards, VAT returns, and any
legal matters such as health and safety.
• Advertising and Promotional Support-undertaken by the franchisor both locally
and nationally. This means that the business can be promoted in a way not
normally available to the small business proprietor.
• Bulk purchase and negotiating Power-The purchase may come from the
franchisor, by this, significant discount may be negotiated.
Other advantages may be interms of finance, Research and development which as well comes
from the franchisor.
2.1.6 Franchising Profitability
In terms of profitability, most entrepreneurs that has adopted franchising as their method of
business entrant sees franchising as been a profitable strategy to their business. In most cases,
this has been identified as a reason for their rapid expansion locally and entrance to
international business environment. Hill (2008), indicated that McDonalds is a good example
of an organization that has grown using franchising strategy.
The first McDonalds was opened in Des Plaines, Illinois,in 1955 and soon afterward, more
outlets continued to open. Today, there are more than30, 000 outlets in 118 countries
globally, (Teixeira, 2005).This rapid expansion in business is as a result of the profit recorded
due to franchising.
Business format franchising is becoming an increasingly international activity. From 1971 to
1985, U.S. franchisors added foreign outlets at a rate of 17% per year, almost twice as fast as
U.S. companies had more than 32,000 franchised outlets overseas. By 2000, 60% of all
franchisors in the United States are expected to have outlets overseas (Hoffman and Preble
1993).
2.1.7 Possible Risk in Business Franchising
Despite its success as an international entry, development and business expansion strategy,
franchising is not without its problems, which many literatures consider as risks involve in
franchising.
Hill & Jones (2008), pp.15, identifies some of these risks which entrepreneurs may be facing
in franchising:
• The royalty must be paid even if a loss is incurred. It is often a percentage of the gross
sales.
• The franchisor has the power to withdraw/cancelled the agreement if some provisions
are not met.
• Oversaturation could occur if too many franchisees are located in one geographical
region.
• Due to overzealous selling by some franchisors, franchisees income potential required
managerial ability, and investment may be incorrectly stated.
• The franchisees may be locked into contracts requiring purchases from the franchisors
or certain vendors, For example this is the case with major McDonald’s franchisees
worldwide.
Also, HSBC (2009), Identified some possible risk in franchising below:
 Devaluation of trade name-If, for example a widespread outbreak of food poisoning is
traced back to one of the outlets of a well known franchise, if this gains media
attention, the particular outlet and all other franchises may suffer accordingly.
 Restrictions on business activity-the franchisor will not normally allow the franchisee
to become involved in activities outside the agreement.
 Restrictions on sale of business-a franchisor should take great care to ensure that
franchisees are right for the business and will not be allow to sell without approval.
 Failure of the franchisor may mean failure to the whole franchisees under the
franchisor. This could create a major problem for the whole business.
 Lack of Independence, and so on.
2.1.8 The Socio-Economic Impact of Franchising
The impacts of franchising need be mentioned in this regard. It has really contributed
immensely to most economy globally. Economically, This can be felt from the capital been
realized due to the franchising activities in the economy, including tax paid by both the
franchisee and the franchisor to the government, the transaction activities, and so on. For
instance, according to Kotler &Keller (2006), franchising accounts for more than $1 trillion
of annual U.S sales and nearly one third of its transactions.Its also the case in the U.K and
most EU countries and other parts of the world where franchising is booming.
Also, the International Franchise Association (IFA), there are an estimated 1500 franchise
companies operating in the United States that conduct business through more than 320,000
retail units. The largest franchise sectors are represented within the hospitality industry (food,
restaurants, and lodging sectors). Franchising provides employment for more than 9 million
Americans. Business format franchising has been the primary driver of the extraordinary
growth experienced in the restaurant, hotel and recreation sectors of the hospitality industry
(Hoy and Stanworth 2003).
In terms of Social impact of franchising, Teixeira (2005), pp.19 states that according to
PriceWaterhouseCoopers study, there were 767,483 establishments in franchise systems in
the United States In 2001 which provided 9,797,117 jobs. Also more than 320,000 small
businesses are franchises, employing one in every 16 workers in the US. Franchising plays an
important role in providing employment to individuals without a higher education or
specialized skills. It also provides first-time job seekers with an entry into the business world
and provides the jobless individuals with an opportunity to supplement their purse.(Shook
and Shook,1993).
In response to economic downturn, for instance in the UK, where most organizations are
embarking on mass retrenchments, McDonalds restaurants keep employing people and
assisting the jobless population in getting back to job.(SKY NEWS, April,2009)
2.1.9 Franchisee-Franchisor Relationship
Franchising is basically mutually beneficial to both the franchisor and the franchisee. This
relationship has been identified in literatures as a major success in most franchise globally.
Kotler& Keller,(2006),identified some of the benefits reaped by the franchisors are the
motivation and hard work of employees who are entrepreneurs rather than “hired hands,” the
franchisees familiarity with local communities and conditions, and the enormous purchasing
power of the franchisor.
Franchisees benefits from buying into a business with a well-known and accepted brand
name. They find it easier to borrow money from financial institutions, and receive support in
areas ranging from marketing and advertising to site selection and staffing. In most cases,
franchisees do walk a line between being independent and loyal to the franchisor. This
independence can allow them more flexibility. (Kotler& Keller,2006).
Finally, the most important aspect of this relationship is been felt in the advantages of
franchising, and this has been identified as one of the primary success in franchising, which
has contributing to franchising been an expansion and development strategy in business
environment globally.
3.0 SIGNIFICANCE OF THE STUDY
Franchising has gained significant interest both in the academic and among multinational
organisations in recent years. Franchising is an important strategy in business environment,
and driver to business ownership for entrepreneurs.
It will be of important to study the roles of franchising in business development particularly
in this modern business world where business sustainability is the question globally.
Another significance of this study is due to its important among academicians, it is a very
popular topic nowadays among researchers and in classrooms, and findings from this
research will add value to the knowledge already have about this subject matter.
This study will contribute immensely to the concept of franchising in the United Kingdom
and help strengthen further research in business development.
The findings of this study will assist a wide range of stakeholders interested in franchising
business including, the government, Private sectors, and local authorities. This research will
also contribute to the entrepreneur’s decisions as to what form of strategy to adopt in entering
a particular business environment.
4.0 RESEARCH AIM AND OBJECTIVES
The aim of the dissertation is to investigate the roles of franchising (business format) on
business development and expansion in food and hospitality industry using the strand
McDonalds as a case study.
RESEARCH OBJECTIVES
In order to achieve the specified aim it will be relevant to:
• Analyze the impacts of the franchising (business format) and registered trade mark on
organisations sales and profit figure.
• Examine if it is profitable and rewarding in adopting franchising as a market entry,
business development and expansion strategy.
• Examine the risks involved when entrepreneurs decided to use franchising as a
business set-up.
• Assess the benefits of franchising businesses on the socio-economic growth of the
economy.
• Assess the possible effects of the current economic downturn (recession) on the
organisations growth and developments.
• Examine the relevance of the training and development courses offered by the
franchisor on the organisations development and expansion.
• Assess the importance of the franchisee-franchisor relationship on the organisations
development and expansion success.
4.1 RESEARCH QUESTIONS
1. What are the importance of proven format and registered brand name to business
development and expansion in terms of sales?
2. Is it profitable to adopt franchising instead of setting up individual business?
3. Are there any risks incurred by an entrepreneur who adopt franchising as the business
set up?
4. What are the contributions of franchising to the socio-economic growth of the
economy?
5. Has there been any effect of the current global economic instability on the business
growth in terms of sales?
6. How has the training and other on-going support provided by the franchisor assist in
development and growth of the organization?
7. Has there been any benefit to the business in terms of the franchisee-franchisor
relationship over the years?
5.0 THE SCOPE AND LIMITATIONS OF STUDY
If the requirement of regency and accessibility are met, then clear limitation ought to be
specified. The variables which are being anticipated as limiting factors for this research are
time and funds.
Even though the research work has been planned, It is envisaged that time might pose a slight
problem. Because it might take time to get the managers to answer questions or fill
questionnaires and funds to travel around.
6.0 STATEMENT OF THE DESIGN AND METHODOLOGY
In order for the aims of this research to be actualised, it is important to have an understanding
of the processes and strategies used by the organisation. The organisation will assist the
researcher in the event that information is needed concerning the organisation.
6.1 RESEARCH METHODOLOGY
The methods that will be employed to gather pieces of information for the research will focus
on population, research instrument, data collection, validity, and reliability of data collected
and the approach to data analysis.
6.1.1 Population
Population would be limited to selected employees (10 crew members and 10 staff trainers)
and management staffs including the business manager, two assistant managers,and ten(10)
selected shift running managers in the chosen McDonalds outlet, The strand McDonald.
Informations will also be collected from the Franchisee head office (West One Foods head
office) at holborn, London through the administrative manager, and the franchisee (Mr. Peter
Sullivan) will be contacted for important informations about the company success,
development and expansion.
6.1.2 Validity and Reliability
Data collected for this research will be assured to have a strong foundation and originality
which could be verified reliably. Respondents’ information would be treated in utmost
confidentiality.
6.1.3 Sampling
A purposive sampling method would be used to select the key elements of the population as
sometimes obtaining data from all the subjects that constitute the entire population in the
research site will be difficult, as discussed above under population. 30 questionnaires would
be administered through personal interview, which will help to explain important questions
clearly to respondents and also would avoid the situation where a good number of the
respondents might have fail to respond or misplace the questionnaire altogether. This will
help decrease the length of time that might be require for the exercise. It will also accord the
investigator the opportunity to ask other relevant questions not captured in the questionnaire
but might prove useful for this study.
7.0 SOURCES AND ACQUISITION OF DATA
This is concerns with the method of data collection for this research. The researcher has been
granted permission by the strand McDonald’s business manager to use the company data and
any information that may be needed during this research work (letter enclosed). This is to
show that ethical issues will be strictly applied throughout this research.
Primary and secondary data will be sourced for this research.Primary data will includes 7.1
Questionnaires- A questionnaire is a method of data collection where by the researcher
formed the questions related to the research objectives that can generate the required data. It
involves asset of questions that are used to establish the pending problems. The researcher
will use open-ended questions, with few closed-ended questions due to its convenience in
response. The questionnaires will be distributed to the selected employers on the field.
7.2 Structured interviews-This involves series of structured question that is related to the
study which will be asked directly in the field. This is usually easy than the questionnaires to
fill.
7.3 Participant observations-This technique will be used to collect first hand information
from the field in a non-verbal behaviour through observation, touching and watching
procedures.
Secondary data sources will be mainly from document review which would assist to access
data during the research studies. Text books, Academic and business journals, magazines,
news papers, the economists and so on will be sourced for this work. This method is used to
enrich, corroborate, and verify data collected from the field.
Informations will be collected from Libraries like the London School of Economics, British
library and other public libraries, internet and online searches would be contacted as
secondary informations for this research.
7.4 Editing and coding of questionnaires will as well be employed for the success of this
study. All The questionnaires collected from the respondents will be checked clearly and
errors will be corrected.
8.0 METHOD OF DATA ANALYSIS
For the purpose of this research study, the researcher will be using both inductive qualitative
and deductive quantitative method of analysing data.
8.1 Qualitative data analysis
Qualitative methods involve informations which can be best described in words. Data will be
analyzed qualitatively, which will include the description and observation of the informations
collected during this study. It is more subjective compared to quantitative. This study will be
based more of qualitative than quantitative analysis.
8.2 Quantitative data analysis
This involves interpreting first hand data from the field, including those from questionnaires,
and interviews conducted. This will involve analysing of structured questions; here the data
will be coded and tabulated. The coded data will be broken into appropriate summary
statistics that will aid in the findings for this research.
9.0 FORM OF PRESENTATION
This dissertation will be presented in written form. There may be addition of tables, graphs or
charts. Oral viva may also be part of the dissertation if required.
The research will contain between fifteen to twenty thousand words, excluding references
and bibliographies.
10.0 TIME-TABLE
This research would be carried out over twelve weeks starting in October to December, 2009.
It is important to create enough time to enable the researcher to critically carry out the work,
and come up with valid and reliable Findings. However, this must remain flexible to allow
for unforеsееn fаctors.Timеscаlеs have to be аppropriаtе, rеаlistic and аchiеvаblе.
WЕЕK START--END ACTIVITIES TO DO
Oct.5th
– Oct 11th
Visit Libraries, internet, searching for journals, and
other secondary sources for Informations.
Oct.12th
– Oct.18th
Book appointments with relevant individuals, business
agencies, Strand McDonalds and the holborn Head
Office for relevant informations.
Oct.19th
– Nov.25th
Draw up quеstionnаirеs for the research study
Oct.26th
– Nov.1st
Background of study/ Start literature review
Nov.2nd
_Nov.8th
Conduct interviews, Field Observations
Nov.9th
_Nov.15th
Questionnaires Administration/Field Work
Nov.16th
_Nov.22nd
Complete Literature review
Nov.23rd
_Nov.9th Start Research Design and Methodology
Dec.30th
– Dec.6th
Data Collection and Analysis
Dec.7th
_Dec.13th
Prеpаrе drаft rеport From the Field Analysis
Dec.14th
-Dec.24th
Final documentation, Summary, Conclusion and
Recommendation. Dissertation Completed and
Submitted.
11.0 REFFERENCES
Aydin N&Kacker M.(1990) in Scott A.S(1996):Why Franchise Companies Expand
Overseas. Journal of business Venturing, Vol.II, Issue 2, March, 1996.pp73-88.Elsevier
Science Inc.
Barbara B.(2001): An introduction to Franchising, Journal of International Franchising.
Education foundation, Sponsored by Pepsico Foundation.pp3
BFA& NatWest Bank (1991): Franchising in the UK. London
Doole I& Lowe R.(2004): International Marketing Strategy: Analysis, development and
Implementation.4th
Edition. London: Thompson Publisher.pp.231
Ghauri P. and Cateora P. (2006): International Marketing, 2nd
Edition, Berkshire: Mc Graw
Hill
Hall D& Jones R.(2008): Business Studies, 4th
Edition. London: Pearson Publisher.pp15
Hill W.L (2008): Global Business Today, 5th
Edition.USA: Mc Graw Hill. pp.408,409
Hoffman& Prebble (1993) in Scott A.S (1996):Why Franchise Companies Expand Overseas.
Journal of business Venturing, Vol.II, Issue 2, March,1996.Elsevier Science Inc
Hoy F.& Stanworth J(2008):Franchising An International Perspectives, London: Routledge
Publisher
HSBC Bank(2009): Starting a Franchise, Journal On Franchising. HSBC Publications.pp 1-3
Kotler P&Keller K.(2006): Marketing Management, 12th
Edition. NJ Upper Saddle River:
Prentice Hall
Lancaster G. & Reynolds P. (2005): Management of Marketing, Elsevier Butterworth:
Heinemann. pp.159
Monir T. (1999): International Business, Theories, Policies& Practices. London: Prentice
Hall. pp. 164-165.
Monye S.O(1997) The International Business Blue Print, Blackwell Publishers
Murray I.(2006): The Franchising handbook. London: Kogan Page Publisher
Reynolds P. (2009): International Marketing Management Lecture Note On Franchising,
London: London School of Commerce, Unpublished.
Scott A.S (1996): Why Franchise Companies Expand Overseas, Journal of business
Venturing, Vol.II, Issue 2, March, 1996. Elsevier Science Inc
Shook C& Shook R.L (1993): Franchising, The Business Strategy That Changes The World.
Englewood Cliffs NJ: Prentice Hall.pp.258
Sky News (2009): News On The Economy Affairs, London: Sky News.2009 April
Teixeira ED (2005): Franchising From The Inside Out, USA: Xlibris Corporation.pp19,21.
Welsh L.S (1992): Development in International Franchising, Global Marketing Journal.6
(1/2)
12.0 BIBLIOGRAPHY
Aydin N&Kacker M.(1990) in Scott A.S(1996):Why Franchise Companies Expand
Overseas. Journal of business Venturing, Vol.II, Issue 2, March, 1996.pp73-88.Elsevier
Science Inc.
Barbara B.(2001): An introduction to Franchising, Journal of International Franchising.
Education foundation, Sponsored by Pepsico Foundation.pp3
BFA& NatWest Bank (1991): Franchising in the UK. London
Doole I& Lowe R.(2004): International Marketing Strategy: Analysis, development and
Implementation.4th
Edition. London: Thompson Publisher.pp.231
Ghauri P. and Cateora P. (2006): International Marketing, 2nd
Edition, Berkshire: Mc Graw
Hill
Hall D& Jones R.(2008): Business Studies, 4th
Edition. London: Pearson Publisher.pp15
Hill W.L (2008): Global Business Today, 5th
Edition.USA: Mc Graw Hill. pp.408,409
Hoffman& Prebble (1993) in Scott A.S (1996):Why Franchise Companies Expand Overseas.
Journal of business Venturing, Vol.II, Issue 2, March,1996.Elsevier Science Inc
Hoy F.& Stanworth J(2008):Franchising An International Perspectives, London: Routledge
Publisher
HSBC Bank(2009): Starting a Franchise, Journal On Franchising. HSBC Publications.pp 1-3
Kotler P&Keller K.(2006): Marketing Management, 12th
Edition. NJ Upper Saddle River:
Prentice Hall
Lancaster G. & Reynolds P. (2005): Management of Marketing, Elsevier Butterworth:
Heinemann. pp.159
Monir T. (1999): International Business, Theories, Policies& Practices. London: Prentice
Hall. pp. 164-165.
Monye S.O(1997) The International Business Blue Print, Blackwell Publishers
Murray I.(2006): The Franchising handbook. London: Kogan Page Publisher
Reynolds P. (2009): International Marketing Management Lecture Note On Franchising,
London: London School of Commerce, Unpublished.
Scott A.S (1996): Why Franchise Companies Expand Overseas, Journal of business
Venturing, Vol.II, Issue 2, March, 1996. Elsevier Science Inc
Shook C& Shook R.L (1993): Franchising, The Business Strategy That Changes The World.
Englewood Cliffs NJ: Prentice Hall.pp.258
Sky News (2009): News On The Economy Affairs, London: Sky News.2009 April
Teixeira ED(2005): Franchising From The Inside Out, USA: Xlibris Corporation.pp19,21.
Welsh L.S(1992):Development in InternationalFranchising,Global Marketing Journal.6(1/2)
Burton F., and Cross A., (1995) Franchising and Foreign Market Entry
Encyclopaedia of Information science, vol. 3 (2003),USA: Elsevier Science. 137-151
Ilan A., and Mckee D., (2006) Service Franchising a Global Perspective, Springer US
Kostecka, Andrew (1988) Franchising in the Economy, US department of commerce
Washington DC
Kotler, P. (1997). Marketing Management: Analysis, Planning, Implementation, and Control,
9th Edition. Upper Saddle River N.J.: Prentice Hall.
Lancaster G., (1999) Essentials of Marketing, 3rd
edition, McGraw Hill
Proctor T.(2003): Essentials of Marketing Research, 3rd
Edition,Harlow: FT Prentice Hall.
Umah M., (2009) Technology Management in the Information Age, lecture class note,
London School of Commerce.
Web1:http://www.fao.org/docrep/w5973e.Cited on 18th
/07/2009
Web 2:http://www.hsbc.co.uk/franchise.Cited on 16th
/07/2009
Web 3:http://www.franchise.org. Cited on 29th
/07/2009
Web 4:http://www.ivythesis.typepad.com. Cited on 15th
/08/2009

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Franchising's Role in Food & Hospitality Business Development

  • 1. DOES FRANCHISING PLAYS MAJOR ROLES IN BUSINESS DEVELOPMENT AND EXPANSION IN FOOD AND HOSPITALITY INDUSTRY: A CASE ANALYSIS OF THE STRAND MC DONALDS? LONDON. BY LATEEF OLUSHOLA SALAMI MBA (INTERNATIONAL BUSINESS) 0692KDKD0209 Being a research proposal submitted to the London School of Commerce (LSC) in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION DEGREE (MBA) UNIVERSITY OF WALES INSTITUTE CARDIFF UWIC, WALES AUGUST, 2009.
  • 2. TABLE OF CONTENTS Front Cover…………………………………………………………………………1 Table of Contents…………………………………………………………………..2-3 Provisional Title…………………………………………………………………….4 Abstract…………………………………………………………………………….5 1.0 Introduction………………………………………………………………………...6 1.1 Background of the study…………………………………………………………...6-7 2.0 Brief Review of Literature…………………………………………………………7 2.1.1 Definition of franchising………………………………………………………..7-8 2.1.2 Brief history and Development of franchising…………………………………8-9 2.1.3 Types of franchising……………………………………………………………9 2.1.4 Franchise Arrangement………………………………………………………..9-10 2.1.5 Important of franchising to Business Development…………………………..10-11 2.1.6 Franchising Profitability………………………………………………………11 2.1.7 Possible Risk in Franchising…………………………………………………..11-12 2.1.8 Socio-economic Impact of franchising………………………………………..12-13 2.1.9 Franchisee-franchisor Relationship……………………………………………13 3.0 Significance of the Study………………………………………………………....14 4.0 Research Aims and Objectives………………………………………………….....14 4.1 Research Questions………………………………………………………………...15 5.0 The Scope and Limitations of the Study………………………………………….15 6.0 Statement of Design and Methodology……………………………………………16 6.1 Research Methodology…………………………………………………………….16 6.1.1 Population……………………………………………………………………….16 6.1.2 Reliability and Validity………………………………………………………….16 6.1.3 Sampling…………………………………………………………………………16 7.0 Sources and Acquisition of data……………………………………………………16 7.1 Questionnaires…………………………………………………………………….16-17 7.2 Structured Interviews……………………………………………………………...17 7.3 Participant Observation…………………………………………………………….17 7.4 Editing and Coding………………………………………………………………...17 8.0 Method of Data Analysis……………………………………………………………….17 8.1 Qualitative Analysis………………………………………………………………...17 8.2 Quantitative………………………………………………..……………………...17-18
  • 3. 9.0 Forms of Presentation…………………………………………………………………18 10.0 Time-Table…………………………………………………………………………….18 11.0 References……………………………………………………….………………….18-19 12.0 Bibliography……………………………………………………….………………..20-21
  • 4. PROVISIONAL TITLE: DOES FRANCHISING PLAYS MAJOR ROLES IN BUSINESS DEVELOPMENT AND EXPANSION IN FOOD AND HOSPITALITY INDUSTRY: A CASE ANALYSIS OF THE STRAND MC DONALDS? LONDON.
  • 5. ABSTRACT There are varieties of market entry strategies from which an entrepreneur can choose, including, franchising (business format), licensing, joint venture, direct exporting, indirect exporting, contracting, and investments, with their advantages and disadvantages, depending on company strengths and weaknesses, the degree of commitment of the company and market characteristics. Franchising is a joint venture between an independent person (the franchisee) and a business owner (the franchisor) who wants to expand its activities .Franchising involves a franchisor selling the right to use a company’s trademark and business format to a franchisee in return for an initial fee and loyalty payment. It is another contractual form of internationalizing. The overall purpose of this study will offer a comprehensive overview of franchising in food and hospitality industry in United Kingdom, its critical relevant for business development, expansion and growth. This research will examine the current status and performance of the strand McDonalds and its relationship to other franchisor in food and hospitality industry in United Kingdom. Informations collected for this research work will be kept in confidential and will be use only for the purpose of this research. Permissions will be obtained from the strand McDonalds before the commencement of this work and the respondents will be treated with respects. Data collection for this research will base on the primary and the secondary sources. The primary sources will includes use of questionnaires, oral interviews, participant observations, and so on, while the secondary sources will includes informations from business agencies, online journals, newspapers, articles, different textbooks will be reviewed to gain a wider scope and understanding of franchising in relationship to business development. Data will be collected and analyzed to come up with different alternatives for promoting franchising as business strategy development. The researcher believe that the outcome and perspective of this research will lend a hand to entrepreneurs, shareholders, and stakeholders, and academics in gaining an insight into the important of franchising as a business development and expansion strategy, and also to as well compare other methods like licensing, joint venture,contracting,exporting(direct and indirect) and so on.
  • 6. 1.0 INTRODUCTION Franchising has become one of the most recognizable business formats in the world, more in the United Kingdom especially in the way entrepreneurs are operating under other people’s business. This research will critically examine franchising and its roles in business development and expansion, in food and hospitality industry, using the Strand Mc Donald’s as a case study. It looks at the roles of franchising in business expansion and development. This proposal looks at the importance of franchising, aim and objectives of franchising as a market entry strategy, research questions, i.e what the study intends to find out. Different methodologies will be used to analyze data for this research, and the sources of data will include questionnaires, observations and interviews. The significance and importance of franchising will be looked at in this research to determine the advantages and disadvantages of franchising in the business world. 1.1 BACKGROUND OF THE STUDY Franchising is similar to licensing, although franchising tends to involve longer term commitments than licensing. It’s basically a specialized form of licensing in which the franchisor not only sells 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). Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise system (1) the Franchisor, who lends his trade mark or trade name and a business system; and (2) the Franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system .Technically, the contract binding the two parties is the franchise. Franchising is a growing method of business expansion, both at domestic and globally. It is becoming a major catalyst for economic growth, employment and development not only in the United Kingdom but also in the international market place (Aydia and Kacker 1990). Franchising has moved from traditional product (trade mark) areas such as automobiles, petroleum and soft –drink bottlers to the standard industries of fast food. Over 80% of Mc Donald restaurants worldwide are owned and operated by local businessmen and women.
  • 7. Other pioneers adapted Ray Krol’s franchising business strategy of proving high standard of quality, friendly services, cleanliness and value. In the hotel industry companies such as Marriott, Holiday Inn, Hilton and Accor have employed franchising as their primary growth strategy. The most well known restaurant franchise in the worlds is McDonalds. So much has been written about Ray Crock 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 McDonald’s 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.pp 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.pp19).This shows that the franchise strategy is one of the important aspects in expanding business and economic development. This research focuses on the importance of franchising as a business development/expansion strategy and the benefits of Mc Donald in expanding rapidly its international market position through leveraging its brand name and business process and utilizing the capital and local management of its franchisees. 2.0 BRIEF REVIEW OF LITERATURE The literature review will be used as a base to throw light on the concept of franchising and the roles it plays in business development. The literature will be selected and critically evaluated in a bid to sift the relevant information, and portray the opinions of the relevant writers. The literature will offer academic insight to experiences and research previously conducted by authors about the subject matter. The literature review would be structured into the following: 2.1.1 Definitions of Franchising It’s a specialized form of licensing in which the franchiser 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. It usually involves long term commitments than licensing.(Hill,2008).
  • 8. Monye (1997), also defines business format franchise as a total business concept. It includes both marketing of goods identified by a brand name and trademark and the preparation of a blue print of all aspects of conducting a successful business including site selection, equipments supply, training, techniques for preparation products/services, marketing, publicity an customer care service. 2.1.2 Brief History and Development in Franchising Franchising is highly developed in the USA, although popular in the UK, but a recent phenomenon. Its development dates back to the end of 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). It became one of the fastest growing types of retailing in the United Kingdom in recent years.It was introduced into the UK in the early 1950’s.However, since those early days franchising has become respectable and often very profitable 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, and McDonalds. (Lancaster &Massingham,1999). Teixeira,(2005),indicated that during 1960s and 1970s,the growth of franchise industry exploded and continued to gain appeal with a boom mostly in europe. There has been more growth in franchising, and according to welsh(1992) in Doole &Robin(2004),franchising has grown rapidly during the 1990s due to the strong interest in a variety of franchise formats and this remain an ongoing process. According to Ghauri & Cateora (2005), 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 China. Franchising has been really successful as it is evidenced in most retail, food and hospitality, automobile business, and it is now became a major business development and international marketing strategy globally. It can be viewed from these two perspectives, (Reynolds P. 2009). McDonalds is a good example of organization that has grown using franchising strategy, (Hill ,2008.pp 408).Franchising explosion in recent years, however has increasing saturated the domestic market.Today,McDonalds has over 300,000 restaurants in 119 countries outside the US or in nontraditional site locations in the US. Franchises are opening in airports, sports
  • 9. stadiums, colleges, hospitals, parks, casinos, pools and other strategic locations globally. (Kotler &Keller, 2006) The surge in franchising has been underpinned by the efforts of the International Franchise Association, and also British Franchising Association, which has developed codes of practice for franchising, and in doing so has greatly helped to reduce the risks to both franchisee and the franchisor.(BFA&NatWest Bank,1991). 2.1.3 Types of Franchising Monir (1999) pp.164 identified two major types of franchising in his book. These includes: First Generation/Product Distribution Franchising simply sells the franchisor’s 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, also managerial expertise, training and perhaps financial support if need be. Murray (2006) identified four types of franchising including Job Franchising, Retail Franchising, Management Franchising and Investment Franchising. 2.1.4 Franchise Arrangements Beshel (2001) pp 3, 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. She identifies two types of franchise arrangements: • Single-Unit(direct) franchise • Multi-Unit Franchise Area development Master Franchise (Sub Franchising) 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
  • 10. franchises once the original franchise unit begins to prosper. This 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. There are two ways a multi-unit franchise can be achieved: • An area development franchise or • A 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 example, a franchisee may agree to open 5 units over a five year period in a specified territory. A 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. 2.1.5 Important Of Franchising To Business Development Franchising has gained much popularity in modern business world over the years, because of its success in contributing to business development and expansion which is the primary aim of this research. Some of which were identified as reasons why entrepreneurs prefers to franchise instead of setting up one business including: many options to reach great results, replicating their success in other markets, raising capital, and expanding through the chain method. According to HSBC(2009),other roles of franchising to business development were identified as follows: • Proven Format-The franchisee enjoy the advantages of an established business, such as a tried and tested product /service, set of established operational guidelines and so on. • Trade Name-Particularly where a franchise operation is well established. Customers will be familiar and comfortable with the product or service that are been offered.
  • 11. • Training and Support-The franchisee is trained in all aspects of the operation including product knowledge, customer service standards, VAT returns, and any legal matters such as health and safety. • Advertising and Promotional Support-undertaken by the franchisor both locally and nationally. This means that the business can be promoted in a way not normally available to the small business proprietor. • Bulk purchase and negotiating Power-The purchase may come from the franchisor, by this, significant discount may be negotiated. Other advantages may be interms of finance, Research and development which as well comes from the franchisor. 2.1.6 Franchising Profitability In terms of profitability, most entrepreneurs that has adopted franchising as their method of business entrant sees franchising as been a profitable strategy to their business. In most cases, this has been identified as a reason for their rapid expansion locally and entrance to international business environment. Hill (2008), indicated that McDonalds is a good example of an organization that has grown using franchising strategy. The first McDonalds was opened in Des Plaines, Illinois,in 1955 and soon afterward, more outlets continued to open. Today, there are more than30, 000 outlets in 118 countries globally, (Teixeira, 2005).This rapid expansion in business is as a result of the profit recorded due to franchising. Business format franchising is becoming an increasingly international activity. From 1971 to 1985, U.S. franchisors added foreign outlets at a rate of 17% per year, almost twice as fast as U.S. companies had more than 32,000 franchised outlets overseas. By 2000, 60% of all franchisors in the United States are expected to have outlets overseas (Hoffman and Preble 1993). 2.1.7 Possible Risk in Business Franchising Despite its success as an international entry, development and business expansion strategy, franchising is not without its problems, which many literatures consider as risks involve in franchising.
  • 12. Hill & Jones (2008), pp.15, identifies some of these risks which entrepreneurs may be facing in franchising: • The royalty must be paid even if a loss is incurred. It is often a percentage of the gross sales. • The franchisor has the power to withdraw/cancelled the agreement if some provisions are not met. • Oversaturation could occur if too many franchisees are located in one geographical region. • Due to overzealous selling by some franchisors, franchisees income potential required managerial ability, and investment may be incorrectly stated. • The franchisees may be locked into contracts requiring purchases from the franchisors or certain vendors, For example this is the case with major McDonald’s franchisees worldwide. Also, HSBC (2009), Identified some possible risk in franchising below:  Devaluation of trade name-If, for example a widespread outbreak of food poisoning is traced back to one of the outlets of a well known franchise, if this gains media attention, the particular outlet and all other franchises may suffer accordingly.  Restrictions on business activity-the franchisor will not normally allow the franchisee to become involved in activities outside the agreement.  Restrictions on sale of business-a franchisor should take great care to ensure that franchisees are right for the business and will not be allow to sell without approval.  Failure of the franchisor may mean failure to the whole franchisees under the franchisor. This could create a major problem for the whole business.  Lack of Independence, and so on. 2.1.8 The Socio-Economic Impact of Franchising The impacts of franchising need be mentioned in this regard. It has really contributed immensely to most economy globally. Economically, This can be felt from the capital been
  • 13. realized due to the franchising activities in the economy, including tax paid by both the franchisee and the franchisor to the government, the transaction activities, and so on. For instance, according to Kotler &Keller (2006), franchising accounts for more than $1 trillion of annual U.S sales and nearly one third of its transactions.Its also the case in the U.K and most EU countries and other parts of the world where franchising is booming. Also, the International Franchise Association (IFA), there are an estimated 1500 franchise companies operating in the United States that conduct business through more than 320,000 retail units. The largest franchise sectors are represented within the hospitality industry (food, restaurants, and lodging sectors). Franchising provides employment for more than 9 million Americans. Business format franchising has been the primary driver of the extraordinary growth experienced in the restaurant, hotel and recreation sectors of the hospitality industry (Hoy and Stanworth 2003). In terms of Social impact of franchising, Teixeira (2005), pp.19 states that according to PriceWaterhouseCoopers study, there were 767,483 establishments in franchise systems in the United States In 2001 which provided 9,797,117 jobs. Also more than 320,000 small businesses are franchises, employing one in every 16 workers in the US. Franchising plays an important role in providing employment to individuals without a higher education or specialized skills. It also provides first-time job seekers with an entry into the business world and provides the jobless individuals with an opportunity to supplement their purse.(Shook and Shook,1993). In response to economic downturn, for instance in the UK, where most organizations are embarking on mass retrenchments, McDonalds restaurants keep employing people and assisting the jobless population in getting back to job.(SKY NEWS, April,2009) 2.1.9 Franchisee-Franchisor Relationship Franchising is basically mutually beneficial to both the franchisor and the franchisee. This relationship has been identified in literatures as a major success in most franchise globally. Kotler& Keller,(2006),identified some of the benefits reaped by the franchisors are the motivation and hard work of employees who are entrepreneurs rather than “hired hands,” the franchisees familiarity with local communities and conditions, and the enormous purchasing power of the franchisor.
  • 14. Franchisees benefits from buying into a business with a well-known and accepted brand name. They find it easier to borrow money from financial institutions, and receive support in areas ranging from marketing and advertising to site selection and staffing. In most cases, franchisees do walk a line between being independent and loyal to the franchisor. This independence can allow them more flexibility. (Kotler& Keller,2006). Finally, the most important aspect of this relationship is been felt in the advantages of franchising, and this has been identified as one of the primary success in franchising, which has contributing to franchising been an expansion and development strategy in business environment globally. 3.0 SIGNIFICANCE OF THE STUDY Franchising has gained significant interest both in the academic and among multinational organisations in recent years. Franchising is an important strategy in business environment, and driver to business ownership for entrepreneurs. It will be of important to study the roles of franchising in business development particularly in this modern business world where business sustainability is the question globally. Another significance of this study is due to its important among academicians, it is a very popular topic nowadays among researchers and in classrooms, and findings from this research will add value to the knowledge already have about this subject matter. This study will contribute immensely to the concept of franchising in the United Kingdom and help strengthen further research in business development. The findings of this study will assist a wide range of stakeholders interested in franchising business including, the government, Private sectors, and local authorities. This research will also contribute to the entrepreneur’s decisions as to what form of strategy to adopt in entering a particular business environment. 4.0 RESEARCH AIM AND OBJECTIVES The aim of the dissertation is to investigate the roles of franchising (business format) on business development and expansion in food and hospitality industry using the strand McDonalds as a case study.
  • 15. RESEARCH OBJECTIVES In order to achieve the specified aim it will be relevant to: • Analyze the impacts of the franchising (business format) and registered trade mark on organisations sales and profit figure. • Examine if it is profitable and rewarding in adopting franchising as a market entry, business development and expansion strategy. • Examine the risks involved when entrepreneurs decided to use franchising as a business set-up. • Assess the benefits of franchising businesses on the socio-economic growth of the economy. • Assess the possible effects of the current economic downturn (recession) on the organisations growth and developments. • Examine the relevance of the training and development courses offered by the franchisor on the organisations development and expansion. • Assess the importance of the franchisee-franchisor relationship on the organisations development and expansion success. 4.1 RESEARCH QUESTIONS 1. What are the importance of proven format and registered brand name to business development and expansion in terms of sales? 2. Is it profitable to adopt franchising instead of setting up individual business? 3. Are there any risks incurred by an entrepreneur who adopt franchising as the business set up? 4. What are the contributions of franchising to the socio-economic growth of the economy? 5. Has there been any effect of the current global economic instability on the business growth in terms of sales?
  • 16. 6. How has the training and other on-going support provided by the franchisor assist in development and growth of the organization? 7. Has there been any benefit to the business in terms of the franchisee-franchisor relationship over the years? 5.0 THE SCOPE AND LIMITATIONS OF STUDY If the requirement of regency and accessibility are met, then clear limitation ought to be specified. The variables which are being anticipated as limiting factors for this research are time and funds. Even though the research work has been planned, It is envisaged that time might pose a slight problem. Because it might take time to get the managers to answer questions or fill questionnaires and funds to travel around. 6.0 STATEMENT OF THE DESIGN AND METHODOLOGY In order for the aims of this research to be actualised, it is important to have an understanding of the processes and strategies used by the organisation. The organisation will assist the researcher in the event that information is needed concerning the organisation. 6.1 RESEARCH METHODOLOGY The methods that will be employed to gather pieces of information for the research will focus on population, research instrument, data collection, validity, and reliability of data collected and the approach to data analysis. 6.1.1 Population Population would be limited to selected employees (10 crew members and 10 staff trainers) and management staffs including the business manager, two assistant managers,and ten(10) selected shift running managers in the chosen McDonalds outlet, The strand McDonald. Informations will also be collected from the Franchisee head office (West One Foods head office) at holborn, London through the administrative manager, and the franchisee (Mr. Peter Sullivan) will be contacted for important informations about the company success, development and expansion. 6.1.2 Validity and Reliability Data collected for this research will be assured to have a strong foundation and originality which could be verified reliably. Respondents’ information would be treated in utmost confidentiality. 6.1.3 Sampling
  • 17. A purposive sampling method would be used to select the key elements of the population as sometimes obtaining data from all the subjects that constitute the entire population in the research site will be difficult, as discussed above under population. 30 questionnaires would be administered through personal interview, which will help to explain important questions clearly to respondents and also would avoid the situation where a good number of the respondents might have fail to respond or misplace the questionnaire altogether. This will help decrease the length of time that might be require for the exercise. It will also accord the investigator the opportunity to ask other relevant questions not captured in the questionnaire but might prove useful for this study. 7.0 SOURCES AND ACQUISITION OF DATA This is concerns with the method of data collection for this research. The researcher has been granted permission by the strand McDonald’s business manager to use the company data and any information that may be needed during this research work (letter enclosed). This is to show that ethical issues will be strictly applied throughout this research. Primary and secondary data will be sourced for this research.Primary data will includes 7.1 Questionnaires- A questionnaire is a method of data collection where by the researcher formed the questions related to the research objectives that can generate the required data. It involves asset of questions that are used to establish the pending problems. The researcher will use open-ended questions, with few closed-ended questions due to its convenience in response. The questionnaires will be distributed to the selected employers on the field. 7.2 Structured interviews-This involves series of structured question that is related to the study which will be asked directly in the field. This is usually easy than the questionnaires to fill. 7.3 Participant observations-This technique will be used to collect first hand information from the field in a non-verbal behaviour through observation, touching and watching procedures. Secondary data sources will be mainly from document review which would assist to access data during the research studies. Text books, Academic and business journals, magazines, news papers, the economists and so on will be sourced for this work. This method is used to enrich, corroborate, and verify data collected from the field. Informations will be collected from Libraries like the London School of Economics, British library and other public libraries, internet and online searches would be contacted as secondary informations for this research.
  • 18. 7.4 Editing and coding of questionnaires will as well be employed for the success of this study. All The questionnaires collected from the respondents will be checked clearly and errors will be corrected. 8.0 METHOD OF DATA ANALYSIS For the purpose of this research study, the researcher will be using both inductive qualitative and deductive quantitative method of analysing data. 8.1 Qualitative data analysis Qualitative methods involve informations which can be best described in words. Data will be analyzed qualitatively, which will include the description and observation of the informations collected during this study. It is more subjective compared to quantitative. This study will be based more of qualitative than quantitative analysis. 8.2 Quantitative data analysis This involves interpreting first hand data from the field, including those from questionnaires, and interviews conducted. This will involve analysing of structured questions; here the data will be coded and tabulated. The coded data will be broken into appropriate summary statistics that will aid in the findings for this research. 9.0 FORM OF PRESENTATION This dissertation will be presented in written form. There may be addition of tables, graphs or charts. Oral viva may also be part of the dissertation if required. The research will contain between fifteen to twenty thousand words, excluding references and bibliographies. 10.0 TIME-TABLE This research would be carried out over twelve weeks starting in October to December, 2009. It is important to create enough time to enable the researcher to critically carry out the work, and come up with valid and reliable Findings. However, this must remain flexible to allow for unforеsееn fаctors.Timеscаlеs have to be аppropriаtе, rеаlistic and аchiеvаblе. WЕЕK START--END ACTIVITIES TO DO
  • 19. Oct.5th – Oct 11th Visit Libraries, internet, searching for journals, and other secondary sources for Informations. Oct.12th – Oct.18th Book appointments with relevant individuals, business agencies, Strand McDonalds and the holborn Head Office for relevant informations. Oct.19th – Nov.25th Draw up quеstionnаirеs for the research study Oct.26th – Nov.1st Background of study/ Start literature review Nov.2nd _Nov.8th Conduct interviews, Field Observations Nov.9th _Nov.15th Questionnaires Administration/Field Work Nov.16th _Nov.22nd Complete Literature review Nov.23rd _Nov.9th Start Research Design and Methodology Dec.30th – Dec.6th Data Collection and Analysis Dec.7th _Dec.13th Prеpаrе drаft rеport From the Field Analysis Dec.14th -Dec.24th Final documentation, Summary, Conclusion and Recommendation. Dissertation Completed and Submitted. 11.0 REFFERENCES Aydin N&Kacker M.(1990) in Scott A.S(1996):Why Franchise Companies Expand Overseas. Journal of business Venturing, Vol.II, Issue 2, March, 1996.pp73-88.Elsevier Science Inc. Barbara B.(2001): An introduction to Franchising, Journal of International Franchising. Education foundation, Sponsored by Pepsico Foundation.pp3 BFA& NatWest Bank (1991): Franchising in the UK. London Doole I& Lowe R.(2004): International Marketing Strategy: Analysis, development and Implementation.4th Edition. London: Thompson Publisher.pp.231 Ghauri P. and Cateora P. (2006): International Marketing, 2nd Edition, Berkshire: Mc Graw Hill Hall D& Jones R.(2008): Business Studies, 4th Edition. London: Pearson Publisher.pp15 Hill W.L (2008): Global Business Today, 5th Edition.USA: Mc Graw Hill. pp.408,409 Hoffman& Prebble (1993) in Scott A.S (1996):Why Franchise Companies Expand Overseas. Journal of business Venturing, Vol.II, Issue 2, March,1996.Elsevier Science Inc
  • 20. Hoy F.& Stanworth J(2008):Franchising An International Perspectives, London: Routledge Publisher HSBC Bank(2009): Starting a Franchise, Journal On Franchising. HSBC Publications.pp 1-3 Kotler P&Keller K.(2006): Marketing Management, 12th Edition. NJ Upper Saddle River: Prentice Hall Lancaster G. & Reynolds P. (2005): Management of Marketing, Elsevier Butterworth: Heinemann. pp.159 Monir T. (1999): International Business, Theories, Policies& Practices. London: Prentice Hall. pp. 164-165. Monye S.O(1997) The International Business Blue Print, Blackwell Publishers Murray I.(2006): The Franchising handbook. London: Kogan Page Publisher Reynolds P. (2009): International Marketing Management Lecture Note On Franchising, London: London School of Commerce, Unpublished. Scott A.S (1996): Why Franchise Companies Expand Overseas, Journal of business Venturing, Vol.II, Issue 2, March, 1996. Elsevier Science Inc Shook C& Shook R.L (1993): Franchising, The Business Strategy That Changes The World. Englewood Cliffs NJ: Prentice Hall.pp.258 Sky News (2009): News On The Economy Affairs, London: Sky News.2009 April Teixeira ED (2005): Franchising From The Inside Out, USA: Xlibris Corporation.pp19,21. Welsh L.S (1992): Development in International Franchising, Global Marketing Journal.6 (1/2) 12.0 BIBLIOGRAPHY Aydin N&Kacker M.(1990) in Scott A.S(1996):Why Franchise Companies Expand Overseas. Journal of business Venturing, Vol.II, Issue 2, March, 1996.pp73-88.Elsevier Science Inc. Barbara B.(2001): An introduction to Franchising, Journal of International Franchising. Education foundation, Sponsored by Pepsico Foundation.pp3 BFA& NatWest Bank (1991): Franchising in the UK. London Doole I& Lowe R.(2004): International Marketing Strategy: Analysis, development and Implementation.4th Edition. London: Thompson Publisher.pp.231 Ghauri P. and Cateora P. (2006): International Marketing, 2nd Edition, Berkshire: Mc Graw Hill Hall D& Jones R.(2008): Business Studies, 4th Edition. London: Pearson Publisher.pp15 Hill W.L (2008): Global Business Today, 5th Edition.USA: Mc Graw Hill. pp.408,409
  • 21. Hoffman& Prebble (1993) in Scott A.S (1996):Why Franchise Companies Expand Overseas. Journal of business Venturing, Vol.II, Issue 2, March,1996.Elsevier Science Inc Hoy F.& Stanworth J(2008):Franchising An International Perspectives, London: Routledge Publisher HSBC Bank(2009): Starting a Franchise, Journal On Franchising. HSBC Publications.pp 1-3 Kotler P&Keller K.(2006): Marketing Management, 12th Edition. NJ Upper Saddle River: Prentice Hall Lancaster G. & Reynolds P. (2005): Management of Marketing, Elsevier Butterworth: Heinemann. pp.159 Monir T. (1999): International Business, Theories, Policies& Practices. London: Prentice Hall. pp. 164-165. Monye S.O(1997) The International Business Blue Print, Blackwell Publishers Murray I.(2006): The Franchising handbook. London: Kogan Page Publisher Reynolds P. (2009): International Marketing Management Lecture Note On Franchising, London: London School of Commerce, Unpublished. Scott A.S (1996): Why Franchise Companies Expand Overseas, Journal of business Venturing, Vol.II, Issue 2, March, 1996. Elsevier Science Inc Shook C& Shook R.L (1993): Franchising, The Business Strategy That Changes The World. Englewood Cliffs NJ: Prentice Hall.pp.258 Sky News (2009): News On The Economy Affairs, London: Sky News.2009 April Teixeira ED(2005): Franchising From The Inside Out, USA: Xlibris Corporation.pp19,21. Welsh L.S(1992):Development in InternationalFranchising,Global Marketing Journal.6(1/2) Burton F., and Cross A., (1995) Franchising and Foreign Market Entry Encyclopaedia of Information science, vol. 3 (2003),USA: Elsevier Science. 137-151 Ilan A., and Mckee D., (2006) Service Franchising a Global Perspective, Springer US Kostecka, Andrew (1988) Franchising in the Economy, US department of commerce Washington DC Kotler, P. (1997). Marketing Management: Analysis, Planning, Implementation, and Control, 9th Edition. Upper Saddle River N.J.: Prentice Hall. Lancaster G., (1999) Essentials of Marketing, 3rd edition, McGraw Hill Proctor T.(2003): Essentials of Marketing Research, 3rd Edition,Harlow: FT Prentice Hall. Umah M., (2009) Technology Management in the Information Age, lecture class note, London School of Commerce. Web1:http://www.fao.org/docrep/w5973e.Cited on 18th /07/2009
  • 22. Web 2:http://www.hsbc.co.uk/franchise.Cited on 16th /07/2009 Web 3:http://www.franchise.org. Cited on 29th /07/2009 Web 4:http://www.ivythesis.typepad.com. Cited on 15th /08/2009