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4 Analyze the standard v.s. adaptations they have to make in the course of international
franchising.........................................................................................................................8
5
McDonald fail to enter Vietnamese market in the past, but manage to do it now......10
possibility of success.................................................................................................13
and Operating Manual. As franchisees have invested their own hard-earned money,
they do not require the detailed level of management which would be needed for
employees. The objectives of the franchisee and of the franchising organisation
are, therefore, very closely aligned, with the success of the one depending to a
great extent on the success of the other. As a result, the franchise network requires
only a simplified and relatively low-cost management system. This is typically
based on the close monitoring by the franchisor of the key performance indicators
(KPIs) and the provision of motivational leadership.
Faster Expansion
The benefit of self-financing business units and a simplified management structure
as described above usually means that franchised networks can be expanded more
quickly than company-run networks. Franchising is all about replicating a clear
and successful business formula and, provided the franchisor is prepared to make a
reasonable investment in marketing at national level, the brand can quickly be
expanded nationwide. This will in turn generate increased sales volumes and
stronger purchasing power, via which the organisation can command greater
discounts from its suppliers.
Better Market Penetration
Franchisees are normally well established as part of the local community, either on
a personal level or as a result of their past business activities. This can give them a
very significant advantage in gaining new business for the franchise at a local
level. They will generally live within the franchise territory, be known there and
will be seen as having made a permanent commitment. These are all attributes
which generally do not apply to company employees and will be of enormous
value in helping franchisees to penetrate their local market.
Greater Commitment
Franchisees have invested in their business and know that they can benefit directly
from its success. Logically, for that reason, their commitment will be much greater
than that of employees, who have made no such financial investment and are
guaranteed to receive at least a basic wage at the end of each month, regardless of
performance. However, money is not the only driving force for better performance.
Since the business is their own, franchisees will take real pride in the service which
they provide and will ceaselessly strive to exceed the expectations of their
customers. This commitment will also reflect in their loyalty to the franchisors
brand, because it is also the franchisee's brand, and they are intent on building up a
business which can be sold on for profit at some future date. Of course, not all
potential franchisees are so strongly motivated nor do all have the necessary
ability to succeed so the franchisors initial selection process must be rigorous.
Less Recruitment
On purchasing their franchise, the franchisees are really taking a decision to stick
with their chosen business for the long term. If they leave prematurely they are
unlikely to realise the full potential of their franchise investment and they may
possibly lose everything. Even when the time is right to sell, it is their own
responsibility to find a suitable buyer. This means that the franchising organisation
is generally freed from the time-consuming and tedious task of continually
recruiting and re-recruiting managers for its business units. As for recruitment of
staff within the franchises themselves, the responsibility for this task clearly rests
with the franchisee, not the franchisor.
International Potential
If you have longer-term aspirations to expand your business internationally, the
franchise system again has many advantages. Using a system called Master
Franchising, you can quickly and simply replicate the whole of the your UK
franchise model in another country, leaving the Master Franchisee to adapt the
model to the local market its language, business customs and legal requirements.
This is a very effective method of expanding a business overseas without any need
to create subsidiary companies or branches in your chosen countries.
output and accounting for 8.1 percent of all private, non-farm jobs. This amounts
to 11 million jobs, and 4.4 percent of all private sector output.
There are also large franchises like hotels, spas and hospitals, which are discussed
further under technological alliances.
2.1 Why is international franchising more complicated than domestic
franchising
Though the franchise registration itself is no high-tech, a rather lengthy process is
involved therein that requires the constant and meticulous attention of the person
handling the franchise registration, in particular it is the case with international
The McDonald's Corporation's business model is slightly different from that of most
other fast-food chains. In addition to ordinary franchise fees and marketing fees, which
are calculated as a percentage of sales, McDonald's may also collect rent, which may also
be calculated on the basis of sales. As a condition of many franchise agreements, which
vary by contract, age, country, and location, the Corporation may own or lease the
properties on which McDonald's franchises are located. In most, if not all cases, the
franchisee does not own the location of its restaurants.
The United Kingdom and Ireland business model is different from the U.S, in that fewer
than 30% of restaurants are franchised, with the majority under the ownership of the
company. McDonald's trains its franchisees and others at Hamburger University in Oak
Brook, Illinois.
As a matter of policy, McDonald's does not make direct sales of food or materials to
franchisees, instead organizing the supply of food and materials to restaurants through
approved third party logistics operators.
According to Fast Food Nation by Eric Schlosser (2001), nearly one in eight workers in
the U.S. have at some time been employed by McDonald's. Employees are encouraged by
McDonald's Corp. to maintain their health by singing along to their favorite songs in
order to relieve stress, attending church services in order to have a lower blood pressure,
and taking two vacations annually in order to reduce risk for myocardial infarction.
Fast Food Nation also states that McDonald's is the largest private operator of
playgrounds in the U.S., as well as the single largest purchaser of beef, pork, potatoes,
and apples. The selection of meats McDonald's uses varies to some extent based on the
culture of the host country.
Smoking ban
McDonald's began banning smoking in 1994, when it banned smoking within its 1,400
wholly owned restaurants.
Analyze the standard v.s. adaptations they have to make in the course of
international franchising
4.1 Standard
Product
McDonald's predominantly sells hamburgers, various types of chicken sandwiches and
products, French fries, soft drinks, breakfast items, and desserts. In most markets,
McDonald's offers salads and vegetarian items, wraps and other localized fare. On a
seasonal basis, McDonald's offers the McRib sandwich. Some speculate the seasonality
of the McRib adds to its appeal. Various countries, especially in Asia, are currently
serving soup.
This local deviation from the standard menu is a characteristic for which the chain is
particularly known, and one which is employed either to abide by regional food taboos
(such as the religious prohibition of beef consumption in India) or to make available
foods with which the regional market is more familiar (such as the sale of McRice in
Indonesia, or Ebi (prawn) Burger in Singapore). In Germany and other Western European
countries, McDonald's sells beer. In New Zealand, McDonald's sells meat pies, after the
local affiliate partially relaunched the Georgie Pie fast food chain it bought out in 1996.
Global operation
Some observers have suggested that the company should be given credit for increasing
the standard of service in markets that it enters. A group of anthropologists in a study
entitled Golden Arches East[38] looked at the impact McDonald's had on East Asia, and
Hong Kong in particular. When it opened in Hong Kong in 1975, McDonald's was the
first restaurant to consistently offer clean restrooms, driving customers to demand the
same of other restaurants and institutions. McDonald's has taken to partnering up with
Sinopec, the second largest oil company in the People's Republic of China, as it takes
advantage of the country's growing use of personal vehicles by opening numerous drivethru restaurants.[39] McDonald's has opened a McDonald's restaurant and McCaf on the
underground premises of the French fine arts museum, The Louvre.
Environmental record
In April 2008, McDonald's announced that 11 of its Sheffield, England restaurants have
been using a biomass trial that had cut its waste and carbon footprint by half in the area.
In this trial, wastes from the restaurants were collected by Veolia Environmental
Services, and were used to produce energy at a power plant. McDonald's plans to expand
this project, although the lack of biomass power plants in the United States will prevent
this plan from becoming a national standard anytime soon.[65] In addition, in Europe,
McDonald's has been recycling vegetable grease by converting it to fuel for its diesel
trucks.
The new owners will rebrand the team and construct a new soccer-specific stadium,
possibly located in Exposition Park, where the Sports Arena now stands, over the next
three years, the newspaper said.
The new name for Chivas USA is slated to be officially announced by the end of this
month.
The sale price for the team will be around US$100 million, according to ESPN.
There has been no announcement over what would happen to Chivas USA players if the
team misses the next two seasons.
Henry Nguyen is known for his passion for sports. Besides bringing the famous
McDonalds fast food chain to Vietnam, Nguyen is also the chairman of XLE, the
company that owns the Saigon Heat, Vietnams first professional basketball team.
XLE is also the organizer of the Vietnam University Games, a student-level sporting
competition.
Hollywood filmmaker Peter Guber currently owns a share of the Los Angeles Dodgers
baseball team and the NBA's Golden State Warriors.
He is chairman and CEO of Mandalay Entertainment Group the producer of successful
movies including Batman, Rain Man, Les Miserables, and Sleepless in Seattle and
chairman of Dick Clark Productions, which is the organizer of the Golden Globe Awards
and the American Music Awards.
Major League Soccer is a professional soccer league representing the sport's highest level
in both the United States and Canada.
The league is composed of 19 teams 16 in the U.S. and 3 in Canada. The MLS regular
season runs from March to October, with each team playing 34 games.
Many international football stars have played in the MLS, including David Beckham,
Thierry Henry, Kaka, and David Villa.
maiden store in Vietnam isn't just a landmark for the company, some are hailing it as a
signal that the country is ripe for investment gains.
"It's very good for the country that well-reputed companies like McDonald's, Starbucks,
Intel and Samsung are going there and putting the country on the investor map," Thomas
Hugger, CEO of Asia Frontier Capital, told CNBC.
He noted Asia's first McDonald's opened in 1975 in Hong Kong, with locations in Beijing
and Shenzhen coming around 20 years ago.
"If you go into Asia frontier markets today, it's like investing 40 years ago in Thailand or
20 years ago in China," he said. Hugger said his company's funds are positioning to play
the Vietnam's growing consumer story.
Vietnam has the fastest-growing middle and wealthy classes in south-east Asia, Boston
Consulting Group said in a report in December. It estimates this group of consumers will
grow from 12 million to 33 million from 2012 to 2020.
Don Thompson, McDonald's president and chief executive officer, told CNBC that the
fast-food chain was not one to rush into a market without having a clear strategy in place
"We want to be in a market with the right infrastructure to the deliver the kind of quality
products and safety standards that we have at McDonald's," he told CNBC. "We've not
expanded into a lot of countries in the last 10 to 15 years. Part of that has been because
we focus a lot more on core of our business and the existing assets that we've had, and
we've had incremental growth in certain markets."
After more than a decade of failed attempts to get approval to enter the country,
McDonald's clearly sees an opportunity in Vietnam's population of more than 90 million,
targeting opening 100 branches over the next 10 years. In nearby Singapore, Asia's
commercial and financial hub, the company has around 130 outlets for a population of
less than 6 million people.
Thompson said that he expected the Vietnam market to be "tremendous" for the company.
Vietnam's consumers tend to be among the world's most optimistic, with more than 90
percent of consumers there expecting not only to have a better standard of living than
their parents, but also for their children to live better than themselves.
That's something Thompson will be keen to tap into, telling CNBC that he invests in the
Asian market not for the long term.
"We don't expect to just see a tremendous return on that investment in year one, two or
three in some cases, but we do expect to build a fundamental awareness of the brand, of
basic customers that are loyal to the brand and to satisfy those needs and to continue to
build our business into the future," Thompson said.
Other commentators also see reasons to compare Vietnam's investment climate to China's
a couple of decades ago.
"They have state-owned companies which are the backbone of the economy," said Jason
Ng, director at Vina Capital, which has $1.5 billion under management. "They are trying
to push all these SOEs (state-owned enterprises) to get listings, which China has done
probably 10 to 15 years ago and achieved significant success."
Ng noted Vietnam Airlines is expected to list on the exchange soon, while BIDV, one of
the country's biggest banks by assets, successfully listed last month.
"A lot more opportunities are coming up," Ng said, citing changes to regulations,
including those that have limited foreign ownership of companies.
But Ng is not as sure that McDonald's entry into the market signals a major change in the
country's fortunes. "It's quite exciting," he said, but added, "it's oneof many fast food
(outlets) already identifying opportunities in Vietnam," with Subway, Starbucks and
Dominoes also recently entering.
He noted even Dunkin Donuts is also doing well there. "I was skeptical of Vietnamese
eating donuts," he said. "The idea is to identify a niche opportunity."
Entry into an Asian country also hasn't guaranteed significant growth for the golden
arches. For more than 20 years, McDonald's has been operating in Indonesia, a country
with a population of around 250 million, but so far it only has around 150 outlets there.
Still, Thompson said that all McDonald's needed to do was to focus on the customer and
to remain relevant to consumers. "Focus on each customer," Thompson said.
"Affordability, making sure that the service is at the highest quality and making sure that
the food is at the highest quality and providing choice and variety and a clean,
contemporary environment like the one here in Vietnam"
There is at least one way Vietnam is living up to a comparison with China. A Big Mac in
Ho Chi Minh City is going for around 60,000 dong, or around $2.82. On the Big Mac
Index published by the Economist, it's just a tad more expensive than China's around
$2.74 in January.
According to the index, China's yuan is around 40 percent undervalued on a purchasingpower parity basis, possibly suggesting Vietnam's currency is also due a bout of
strengthening.
possibility of success
McDonald's might not be the first international fast food chain to enter Vietnam, but it is
the first to offer drive-thru service. The two-story stand-alone 350-seat capacity
restaurant operates 24 hours a day and it has parking for cars and over 250 motorbikes.
Like many newer McDonald's restaurants, it also offers free Wi-Fi access.
In recent quarters, McDonald's has struggled to grow in the U.S. Last quarter, the
company's comp sales fell by 1.4%.
However, internationally the chain has experienced healthier results. Most recently,
global comp sales grew by 1.2% in January for McDonald's. This was driven by 2%
growth in Europe and a 5.4% jump in APMEA. China, Japan, and Australia have
traditionally carried earnings for the APMEA segment.
Yum! Brands brought KFC to Ho Chi Minh City in 1997 . There are now 134 KFCs and
34 Pizza Huts today in Vietnam. Similarly, Burger King introduced the Whopper to
Vietnam in 2011, and today the company has over a dozen locations there.
YUM Restaurants International, or YRI, is a segment which covers all countries outside
of the U.S., China, and India. Despite KFC's lingering problems with the December 2012
poultry supply incident in China, the company is still the market leader by a wide margin
in many Asian locations like Indonesia and Vietnam.
In 2013, Burger King's Asia Pacific, or APAC, segment had comp sales growth higher
than any other Burger King segment, at 4.1% for the year and a whopping 6.2% in the
fourth quarter.
Both Yum! Brands and Burger King also have leads in marketing and distribution.
Foodpanda is the leading online marketplace for food delivery in 38 countries and it
allows partnered restaurants to bring their menus online and extend their customer bases.
Foodpanda has partnered with Yum! Brands and Burger King, and also with Dominos,
Dunkin' Brands, and Starbucks.
The average wage in Vietnam is around 3.2 million VND ($150) per month, while
college graduates working in top professions make 9.2 million VND ($440) per month.
Even CEOs make just 17-20 million VND ($800-$950) per month. Even though these
wages seem low by U.S. standards, a salary of just $500 a month in Vietnam is more than
enough to live on.
Local restaurants often charge $2-$5 while most street vendors that offer authentic
Vietnamese cuisine sell meals for under $1. Pho, a popular street food in Vietnam that is
comprised of noodle soup mixed with herbs, vegetables, and meat, and sought after in
Asian restaurants throughout the U.S. at a price that sometimes reaches $10, rarely costs
over $1 in Vietnam.
It is going to be difficult for McDonald's to compete with these prices if the company still
wants to make a profit. Furthermore, Vietnam sees fewer tourist visits than other
countries in Asia. Much of the tourism into the country still involves VietnameseAmericans returning to visit family.
The current effort by McDonald's to expand its coffee offering may not be as big of a
factor for the company in Vietnam as it may be in the U.S.
Bottom line
I visited relatives in Vietnam a few years ago and the lack of a McDonald's was one of
the first things I noticed. Staying in Ho Chi Minh City, I saw several KFCs and Pizza
Huts, and ate at both chains. Customers at these chains were often younger professionals
and many were tourists.
The success of McDonald's will be driven by the economy in Vietnam and its median
wages. It is unrealistic to expect those who make $150 a month to spend $3-$4 on a
single meal. However, sometimes it isn't even about the price. Sometimes it is just a
matter of something like pho being more appealing than a Big Mac, or in this case, a
McPork.
Furthermore, tourists to the country may prefer to try new things because you can almost
find a McDonald's anywhere.