The Role of Franchising as a Driver of Economic Development for Emerging EconomiesMarko Grnhagen Southern Illinois University - EdwardsvilleCarl L. Witte Roosevelt University“发展就是硬道理”“Development is the cardinal principle.” Deng XiaopingIntroductionnSince the end of the Cold War, economies around the globe have begun to open their economiesnCentral & Eastern European countries as well as Asian economies such as China and Vietnam are encouraging market forces to spur economic developmentnFranchising plays a clear role in this transitionnFranchising as one of the fastest growing U.S. exports may become the chief Western export product to emerging economies at the beginning of the 21st centuryIntroductionnConceptual perspective on franchising as a tool for the development of emerging economiesnRestaurant franchise industry as the backdropnNot all emerging economies are the samenCommon characteristics across cultures that show overlap and offer insightsIntroductionnFocus is not on franchising simply as a distribution network for goods or services (“Product & Trade Name Franchising”)n“Business format franchising” (leasing of an entire concept, like restaurants, dry cleaning, hotels) has shown exponential growth over the past three decades globallynWestern franchise systems (and U.S. systems in particular) have “internationalized” since the 1960snOver 100,000 franchised units of U.S. franchisors in foreign marketsnBy the end of 2006, 60% of all U.S. franchisors are expected to have foreign outletsSubfranchising as an ExportnMulti-unit ownership by individual franchisees has become widespread over the past three decadesnThree types: area development, sequential and subfranchising (master franchising)nSubfranchising (and corporate ownership) are most frequently used means of franchise expansion globallynSubfranchising: Franchisor grants permission to subfranchisor to franchise on franchisors behalf to third partiesnSubfranchisor for one or several countries receives share of royalties in exchange for assuming control & franchisor tasksnAdvantage of local subfranchisor is seen in knowledge of indigenous market, culture, legal system & HR practicesFranchisings PrerequisitesnMarketers have long claimed that promotions, distribution channels and consumer research contribute to the development of economies (Dholakia & Sherry 1987, Olsen & Granzin 1990)nFranchising requires functioning infrastructure, legal framework & disposable income (demand) as well as ambitious, entrepreneurially-oriented individuals (Love 1986, Sherman 1993)nFranchised business processes must lend themselves to standardizationnFranchising has been shown to be most successful when entering “disorganized” markets dominated by “mom & pop” stores (Raab & Matusky 1987)Franchisings ImpactnGenerally accepted principle that new competition makes established businesses betternImport of Western-style franchising carries promise of providing and/or improving:nTechnological AdvancesnKnow-How and TrainingnPrivate Enterprise DevelopmentnHealth StandardsnCustomer Service StandardsnSupply Chains, Logistics and InfrastructurenCredit/LendingnLegal StandardsnConsumer Education1. Technological AdvancesnEquipment, building design, food technologyn“Trial & error” have been endured elsewhere, innovations are implemented without delay (Dwoskin & Havas 1975) nFranchising is “readily acceptable source of technological development” (Sherman 1993)nDiffusion & adoption of technology by imitation, staff turnover and joint venturing2. Know-How & TrainingnProduct, operating methods, marketing, financing, accounting procedures, monitoring of franchiseesnMcDonalds operating & training manual with 1000 pages of rulesnCultural pervasiveness: 7% of the US workforce have passed through McDonalds quality & value instilling programsn“Franchising transfers across borders a commodity more valuable than capital, labor or land knowledge.” Leonard Swartz of Arthur Andersen 1992nIn the West, work force education & professional development programs are believed to increase incomes & living standards3. Private Enterprise DevelopmentnOwnership opportunities for 1000s of small business people (Ozanne & Hunt 1971)nPositive socioeconomic consequences (Hunt 1972) on employment, growth, innovation and socioeconomic stabilitynMany host countries welcome franchises because local ownership is the ultimate non- threatening goal (Semenik & Bamossy 1993)nFranchising as potential means of turning over ownership of previously state-owned enterprises to small business people through indigenous franchising (Zeidman 1991)nLocal expertise about laws, customs and culture benefits franchisors (Fladmoe-Linquist 1996)4. Health StandardsnImprovement of food processing hygiene, sanitation (Watson 1997)nFranchisor rules force local suppliers to meet system specifications, e.g., in meat processing, or uninterrupted refrigeratio