Analyzing the Impact of Franchisee Businesses on Local Businesses

This research project investigates the impact of franchisee businesses, such as KFC and McDonald's, on local business houses. The study explores the franchisee business model, a common market expansion strategy used by multinational companies, and examines its positive and negative effects on local organizations. The report delves into the advantages, including entrepreneurial ventures, talent acquisition, and innovation, as well as disadvantages like expensive legal formalities and potential exploitation by franchisors. It includes a financial and numerical audit, research design, conclusions, and recommendations based on the findings. The research utilizes a deductive approach with descriptive and qualitative methods, employing secondary data and thematic analysis to analyze the impact on local businesses and suggest ways to compete with large franchises.

Running head: MANAGEMENT
Impact of Big Franchisee on Local Business
Name of the student
Name of the university
Author Note:

2
MANAGEMENT
Table of Contents
Introduction................................................................................................................................3
Research Objectives...............................................................................................................3
Literature Review.......................................................................................................................3
Franchisee Business...............................................................................................................3
Positive impacts of franchisee businesses on local businesses:.................................................3
Promotes entrepreneurial ventures in local markets:.............................................................3
Talent acquisition and development:.....................................................................................4
Greater scope of business successes:.....................................................................................4
Innovation in product line:.....................................................................................................4
Support to local businesses:...................................................................................................4
Expensive and lengthy legal formalities:...............................................................................5
Franchisors may exploit the franchisee:.................................................................................5
Financial and Numerical Audit..................................................................................................5
Research Design.....................................................................................................................6
Conclusions and Recommendations..........................................................................................8
References..................................................................................................................................9

3
MANAGEMENT
Introduction
The title of the project is “Impact of Franchisee businesses like KFC and
McDonalds on the local business houses”. The Franchisee is one of the most of commonly
used market expansion modes which are used by multinational companies to enter foreign
markets. The multinational companies like fast food companies use this model largely expand
into new markets. The franchisee contracts enable the local business firms to utilize the logos
and brands of the franchisor to market the products of the former. The report has presented
both the positive as well as the negative impacts of the business to the local organizations.
Research Objectives
The research objectives are as follows; To find out the impact of the large franchisee over the small business houses To find out the positives and negatives of franchise based business To find out the ways to compete with the large franchises in the near future
Literature Review
Franchisee Business
Yakimova, Owens and Sydow (2019) define franchisee as the business model which
attributes the right to one business firm to market the products of another firm by using
intangible assets like brands and logos of the latter.
Positive impacts of franchisee businesses on local businesses:
Promotes entrepreneurial ventures in local markets:
Franchisees encourage entrepreneurial ventures in the local markets which in turn
encourage socio-economic development in the local markets. Burns (2016) points out those
entrepreneurial ventures introduce new and innovative products in the local markets. He
points out that entrepreneurial ventures create employment opportunities, thus paving ways

4
MANAGEMENT
for economic development among the local communities. Bareša, Ivanović and Bogdan
(2017) support the previous authors by pointing out that entrepreneurial ventures enable
economic development not only in the local market but the country as a whole.
Talent acquisition and development:
Franchisees enable the local businesses acquire talent and develop them to align them
with their business needs. Dioch et al. (2017) opine that franchisor businesses provide
training to the employees of the entrepreneurial firms which serve as the franchisee. Watsonet
al. (2016) point in this respect that franchisor companies usually seek to partner with small
scale firms which would enable them to expand their business in host countries.
Greater scope of business successes:
The franchisee model provides greater scope of business success to small scale firms.
Giudici et al. (2018) point out in this respect that franchisors permit the small scale firms
utilize their brand names to market goods of the former. Holt and Littlewood (2017) point out
that franchisors own brands which are already established in the market and enjoy immense
customer base.
Innovation in product line:
Franchisee business model encourage innovation in the host markets which small
scale firms alone cannot drive. Bouncken et al. (2016) point out that since franchisors are
multinational companies marketing products before a global base of consumers, they hold
certain standards for their products in terms of quality and specifications. This means that
franchisee enable the companies introduce their high quality products in the market.
Support to local businesses:
Franchisee businesses offer local businesses support to generate revenue and grow.
Vuong, Vu and Vuong (2016) opine that franchisee businesses support the local business and
promote their growth. This is because the franchisee business need to offer raw materials

5
MANAGEMENT
from local businesses which promotes economic development among the latter. For example,
the international clothing brands like Bata often enter into franchisee with local firms to
market their products. These local firms in obtain stocks of finished goods from the local
factories. Negative impacts of franchisee on local businesses:
Expensive and lengthy legal formalities:
Argyres and Bercovitz (2015) can be iterated to mention that franchisee is a contract
between the franchisor and the franchisee. The franchisee according to the contract can utilize
the brand value and products owned by the franchisor to operate business in the market and
generate profits. Thus, it can be pointed out that franchisee is based on contractual
relationship between the franchisor and franchisee.
Franchisors may exploit the franchisee:
The franchisors, usually multinational companies may exploit the franchisees
inflicting serious damage to the business of the latter. Lafontaine, Perrigot and Wilson (2017)
mention in their work that franchisors are usually multinational companies which have
immense revenue base.
Financial and Numerical Audit
The multinational companies like that of KFC in the year 2015 charged around
$45000 as fees for franchisee business whereas the cost for the building and equipment
charged was around $695000 to $1.2 million (franchises/kfc-kentucky-fried-chicken 2019).
This apart the start-up expenses ranged from around $1.3 million to $2.5 million. A 5%
royalty fee on gross monthly receipts that is to be paid to the company.
Research Design
Research Design Decision Justification

6
MANAGEMENT
Research Type
 Inductive or Deductive
 Exploratory/Explanatory/Descriptive
 Deductive
Methods
 Descriptive
Design
 Helps to
formulate
the
hypothesis
and also
helps to
analyze the
research in a
proper and
effective
manner
Research Approach
 Qualitative/Quantitative/Mixed
Methods
 Qualitative
Methods
 The use of
the
qualitative
methods
helps the
organization
to perform a
theme based
study on the
same subject
Type of data
 Primary/Secondary  Secondary
Data
 The use of
the
Secondary
data will
provide a
thematic
analysis and
it will also
help to
construct the
literature
review of
the research
Data Collection Methods
 Quantitative
 Qualitative
 Group/Observation Mixed
 Secondary
Methods
 The use of
the
secondary
research
methods
helps the

7
MANAGEMENT
organization
to ensure
reliability
and validity
Sampling Plan
 Sampling Frame
 Sampling Unit
 Sampling Methods (Probability/Non
Probability)
 Sampling Techniques
 Sampling Size
 The sampling
unit is the
different
workers of
both local
business
houses and
large scale
organizations.
 The interview
will be carried
out on the
managers of
both local and
large scale
business
organizations.
 A sample size
of 6 managers
3 from each
industry has
been selected
for the
research.
 Systematic
probability
Sampling
Technique
 The
selection of
the
participants
both from
the large
scale and
small local
business
houses are
important as
because
such a
process will
help the
research to
get
authenticate
data and
information
Data Analysis Plan
 Thematic Analysis
 Statistical Analysis
 Quantitative Analysis
 Thematic
Analysis
 Thematic
analysis is
needed to
conduct the
interview
transcript

8
MANAGEMENT
Conclusions and Recommendations
The report details out the different perspectives of the impact of the franchisee
business on the local business houses. The local business houses face a large number of
difficulties that makes it tough for the management of the small business houses to sustain in
the market. The companies like KFC, McDonalds and other large franchisee generally
operate across both national as well as international borders.

9
MANAGEMENT
References
``Yakimova, R., Owens, M. and Sydow, J., 2019. Formal control influence on franchisee trust
and brand-supportive behavior within franchise networks. Industrial Marketing
Management, 76, pp.123-135.
Anon, (2019). [online] Available at: https://www.franchise.org/franchise-business-growth-
outpaces-other-business-sectors [Accessed 1 Jun. 2019].
Anon, (2019). [online] Available at: https://www.sba.gov/blogs/franchise-businesses-can-
and-do-impact-local-communities [Accessed 1 Jun. 2019].
Anon, (2019). [online] Available at: https://www.franchisehelp.com/franchises/kfc-kentucky-
fried-chicken/ [Accessed 6 Jun. 2019].
Argyres, N. and Bercovitz, J., 2015. Franchisee associations as sources of bargaining power?
Some evidence. Journal of Economics & Management Strategy, 24(4), pp.811-832.
Baena, V. and Cerviño, J., 2015. New criteria to select foreign entry mode choice of global
franchise chains into emerging markets. Procedia-Social and Behavioral Sciences, 175,
pp.260-267.
Bareša, S., Ivanović, Z. and Bogdan, S., 2017. Franchise Business as a Generator of
Development in Central Europe. UTMS Journal of Economics, 8(3), p.281.
Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.
Business.qld.gov.au. (2019). Advantages and disadvantages of buying a franchise | Business
Queensland. [online] Available at: https://www.business.qld.gov.au/starting-business/buying-
business/buying-franchise/advantages-disadvantages [Accessed 1 Jun. 2019].

10
MANAGEMENT
Businessinsider.in. 2015. Businessinsider.in. [online] Available at:
https://www.businessinsider.in/Heres-what-it-costs-to-open-one-of-the-top-restaurant-
franchises-in-the-world/articleshow/48244433.cms [Accessed 18 May 2019].
Dada, O., Jack, S. and George, M., 2016. University–Business Engagement Franchising and
Geographic Distance: A Case Study of a Business Leadership Programme. Regional
Studies, 50(7), pp.1217-1231.
Diochon, M.C., Anderson, A.R. and Ghore, Y., 2017. Microfranchise emergence and its
impact on entrepreneurship. International Entrepreneurship and Management Journal, 13(2),
pp.553-574.
Drucker, P., 2017. Concept of the Corporation. Routledge.
Fink, L., Yogev, N. and Even, A., 2017. Business intelligence and organizational learning:
An empirical investigation of value creation processes. Information & Management, 54(1),
pp.38-56.
Forbes.com. (2019). [online] Available at: https://www.forbes.com/sites/edteixeira/.../why-
more-small-businesses-fail-to-franchise [Accessed 1 Jun. 2019].
Giudici, A., Combs, J.G., Cannatelli, B.L. and Smith, B.R., 2018. Successful scaling in social
franchising: The case of Impact Hub. Entrepreneurship Theory and Practice,
p.1042258718801593.
Giudici, A., Combs, J.G., Cannatelli, B.L. and Smith, B.R., 2018. Successful scaling in social
franchising: The case of Impact Hub. Entrepreneurship Theory and Practice,
p.1042258718801593.
Hoy, F., Perrigot, R. and Terry, A., 2017. 1. Research contributions to understanding
franchising. Handbook of Research on Franchising, p.1.

11
MANAGEMENT
Julien, P.A., 2018. The state of the art in small business and entrepreneurship. Routledge.
Kenny, B. and Dyson, K., 2016. Marketing in small businesses. Routledge.
Kickul, J. and Lyons, T.S., 2016. Understanding social entrepreneurship: The relentless
pursuit of mission in an ever changing world. Routledge.
Opentextbc.ca. (2019). Franchising: A Popular Trend – Introduction to Business. [online]
Available at: https://opentextbc.ca/businessopenstax/chapter/franchising-a-popular-trend/
[Accessed 1 Jun. 2019].
Siebert, M. (2019). The 9 Advantages of Franchising. [online] Entrepreneur. Available at:
https://www.entrepreneur.com/article/252591 [Accessed 1 Jun. 2019].
Watson, A., Dada, O., Wright, O. and Perrigot, R., 2017. Entrepreneurial orientation rhetoric
in franchise organizations: The impact of national culture. Entrepreneurship Theory and
Practice, p.1042258717738519.
Watson, A., Dada, O.L., Grünhagen, M. and Wollan, M.L., 2016. When do franchisors select
entrepreneurial franchisees? An organizational identity perspective. Journal of Business
Research, 69(12), pp.5934-5945.