Daniels et al. (2007) stated that franchisors’ not developing enough domestic penetration first is one problem why many franchises fail abroad. Sufficient cash and management depth is a necessity before foreign expansion. Nonetheless, achieving foreign penetration may still be difficult even for well established domestically franchisor. Product and service standardization, high identification through promotion, and effective cost controls are the three factors for the success of domestic franchisors but these three become their dilemma.Carrying out these three factors when incoming many foreign countries is a problem.
At the same time, the more adjustments made to the host country’s different conditions, the less a franchisor has to offer a potential franchisee. Franchising is said to be a partnership between the franchisor and the franchisee. Like any other relationship, problems do exist, so with franchise. Tensions existing between a large number of franchisors and their franchises can lead to disagreements, conflicts, and even litigation.According to Asia-Pacific Centre for Franchising Excellence (2011) which is a Centre for franchise research and franchise education, franchise problems in franchise relationships can arise from differing expectations of a franchisor and franchisee. These may include the qualities, discipline and responsiveness each brings to the franchise relationship. Franchise problems about financial issues can arise if franchise fees are not paid on time, or franchisor support and training (for which the franchisee pays) is considered to be lacking or inadequate.Potential negative franchisor actions include terminating franchise agreements; reducing promotional and sales support; and creating unnecessary red tape for orders, information requests, and warranty work.
Potential negative franchisee actions include terminating franchise agreements; adding competitors’ product lines; refusing to promote goods and services; and not complying with franchisor information requests (Berman & Evans, 2006). An entrepreneur then must be proactive rather than reactive which means anticipating problems beforehand instead of solving it when it comes.Through careful planning and placing safeguards in each department, an entrepreneur can prevent these problems from happening or if not, minimize its’ impact the moment it will occur.
Berman & Evans (2006) also said that to impede possible fraudulent franchises, franchisees should get hold of full prospectuses and financial status reports from all franchisors being considered; and they should survey existing franchise operators and customers.By first evaluating full prospectuses and financial status reports, an entrepreneur can properly evaluate the proposed investment proposal so as to ensure that it can bring great benefits rather than lose great amounts of cash. Surveying existing franchise operators and customers can also help an entrepreneur minimize costs by finding a good location and possible suppliers, assess the degree of restrictions he/she has to face and know how large the target market would be and study the market’s behavior as well.Perhaps the most critical question to consider in evaluating a franchisor relates to the franchisor’s training program. Intensive training programs, including on-the-job training at an existing outlet are provided by many reputable franchisors. Some even provide refresher training after the franchisee has been operating for some time (Siropolis, 1990). The main objective of these training programs is to supply entrepreneurs with management skills they need to run a franchise profitably.
Otherwise, the typical inexperienced franchisee is likely to founder and fail. Entrepreneurs should make sure their franchise contract tells exactly how and where training will take place. As what Duckett (2010) stated, training is the very essence of franchising- training franchisors to build networks; training franchisees to build businesses; and training the staff of franchisees to deliver products and services to their system’s required standard.However, another potential drawback exists; the franchisor is judged by the actions of his or her peers. A successful franchise unit can lose customers if other units of the same franchise fail. Boone and Kurtz (2010) advised that a strong, effective program of managerial control is essential to offset any bad impressions created by unsuccessful franchises.
Keeping a franchise system successful would mean ensuring consistency in all the major things each retail unit does. Consumer confidence and all the systems and procedures are also essential.Franchises that operate internationally must also learn to adapt in some ways to local cultures. One of Kentucky Fried Chicken’s most successful franchisees is in Malaysia. In addition to having good distribution through its stores, this franchisee raises and processes its own chickens to maximize the quality of its product.
Thus vertical integration of operations and sourcing eliminates a lot of intermediaries in addition to providing extra quality control (Keegan et al. , 1995).