Business Research Report: Franchisee Impact on Local Business Houses

This research report investigates the impact of franchisee businesses, specifically focusing on the influence of multinational corporations like KFC and McDonald's on local business houses. The report begins with an introduction outlining the background and context of the study, followed by a literature review that explores various perspectives on the franchisee model, its advantages, and its disadvantages, including factors such as entrepreneurial ventures, talent acquisition, innovation, and support to local businesses, along with the negative impacts like expensive legal formalities. The methodology section details the research design, sampling techniques, and data collection methods employed. The findings and results are presented, leading to a comprehensive conclusion and recommendations. The report aims to provide insights into the competitive dynamics between large franchisees and local businesses, offering strategies for local businesses to navigate the challenges and leverage opportunities in the market.

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

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Title of the Project
The title of the project is “Impact of Franchisee businesses like KFC and McDonalds
on the local business houses”.

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Executive summary:
The following report has been based on the study of the impact of the franchisee business over
the local business houses. The report starts with a formal introduction that provides a background
for the report. The report contains the literature review of the topic where the various
perspectives of the franchisee business and its impact on the local business houses has been
provided. The inclusion of the research methodology with the designs and sampling of the
research has been another important contribution of the following report. The report ends with a
proper conclusion which in other words can be said to be an overall summary of the report.

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Table of Contents
Executive summary:........................................................................................................................3
Table of Contents.............................................................................................................................4
Assessment 2: Research project:.....................................................................................................6
Introduction (background to the research):..................................................................................6
The research question and/or objectives;.....................................................................................6
Literature review..............................................................................................................................7
Franchisee business:....................................................................................................................7
Positive impacts of franchisee businesses on local businesses:.......................................................8
Promotes entrepreneurial ventures in local markets:...................................................................8
Talent acquisition and development:...........................................................................................9
Greater scope of business successes:.........................................................................................10
Innovation in product line:.........................................................................................................10
Support to local businesses:.......................................................................................................11
Negative impacts of franchisee on local businesses:.................................................................11
Expensive and lengthy legal formalities:...................................................................................12
Franchisors may exploit the franchisee:........................................................................................12
Research design.............................................................................................................................13

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Type of research undertaken......................................................................................................15
Justification of selecting descriptive design..............................................................................15
Sample design............................................................................................................................16
Justification for selecting systematic sampling technique.........................................................16
Data collection methods............................................................................................................17
Justification for selecting secondary data collection method....................................................17
Plan of Data Analysis Technique..............................................................................................18
Results and Findings..................................................................................................................18
Conclusions and Recommendations..............................................................................................18
References......................................................................................................................................19

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Assessment 2: Research project:
Introduction (background to the research):
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 premium retailers of lifestyle
related products like designer wearable products use this model as well to expand their
businesses. The franchisee contracts enable the local business firms to utilize the logos and
brands of the franchisor to market the products of the former. Thus, the franchisee business
owing to the brand value of the franchisors is able to attract immense numbers of consumers to
market their products and earn huge revenue. The franchisee contracts may also entitle the
franchisee to avail facilities like training of their staff and obtain machinery from the franchisors
concerned. Thus, the local franchisees serving multinational companies like KFC are able to
generate higher profits compared to the other local business operating in the similar market.
Franchisee paves way of multinational companies enters more local markets like cities and
towns. They are able to offer more innovative products which appeal the contemporary
consumers. Multinational companies like KFC have their franchisee networks which cater to the
needs of the specific host markets (kfc.com. 2019). Thus, it is evident that big franchisees backed
by multinational companies have significant impacts, both negative impacts as well as positive
impacts on local businesses. The aim of the paper is to delve into the impact of multinational
franchisees businesses on the local business environment.

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The research question and/or objectives;
The research questions of the following research will be as follows;
 What is the impact of the large franchisees over the small business houses? What are the positives and negatives of franchise based business? What are the ways to compete with the large franchises in the near future?
On the other hand, 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. The term can also be defined in the lines of
Argyres and Bercovitz (2015). The authors define the term as the contract between two parties in
which. The first party to the contract is the business organization which is expanding into a new
market and provides right to a third party firm to market its products. The third party firm(s) is
the second party to the contract which is known as franchisee contract. The first party is known
as the franchisor and the second party is known as the franchisee. The contract between the two
parties define the terms and conditions of the franchisee business like profit sharing ratio
between the two parties. Lee et al. (2015) point out that franchisees attribute certain rights and

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responsibilities on both the parties. The franchisor has the right to use its franchisor to expand its
business and retain the ratio of profit as per the contract. The franchisor is responsible for
providing training to the employees of the franchisee, if the contract specifies and provide the
franchisee with the key ingredients which goes into manufacturing the finished products. For
example, in case of KFC, the key ingredients would consist of the signature spices and flavors
which attribute KFC products their unique tastes. The franchisee is on the other hand entitled to
receive the share of profit it is entitled to. The franchisee has to right to obtain training and key
resources from the franchisor, as per the contract. The franchisee is responsible for securing the
brand of the franchisor and expanding the business of the latter within the market specified. The
franchisees are also responsible for promoting the businesses of the franchisors in order to ensure
business expansion of the latter (Baena and Cerviño 2015). This analysis shows that franchisee
business model enable the franchisors to expand their businesses in the market. The franchisors
are able to enter new markets by marketing their products in the markets through franchisors
while the franchisees are able to generate high revenue by marketing branded products.
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 for
economic development among the local communities. Bareša, Ivanović and Bogdan (2017)
support the previous authors by pointing out that entrepreneurial ventures enable economic

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development not only in the local market but the country as a whole. McCann and Ortega-
Argilés (2016) contradict the opinion of the previous author by pointing out that entrepreneurial
ventures though bring about socio-economic development; face several challenges like lack of
financial resources, manpower and knowledge. These factors deter entrepreneurial ventures and
impede their growth. In fact a large numbers of entrepreneurial ventures face bankruptcy and are
forced to exit from the market owing to this lack of resources. Blackburn (2016) point out in this
respect that franchisee businesses provide immense support to the entrepreneurial ventures, this
promoting growth of the latter. This is because, franchisees enable the entrepreneurs to use their
brand names to market products of the former. The entrepreneurs can market the products of the
franchisors which enables the former to attract customers easily to purchase their products. Thus,
franchisee business model enable small scale entrepreneurial firms to operate successfully in the
market and generate huge profit.
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. Pitt, Napoli and Van Der
Merwe (2017) strengthen the argument by pointing out that franchisors are usually multinational
companies having immense brand value in the global market. This means that entrepreneurial
firms can use the brand value of the franchisors to attract employees which would not have been
possible for them to attract otherwise. It can be pointed out from the analysis that franchisee
businesses enable the small scale firms attract talent from the market. Similarly, the franchisor

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businesses train the employees of the small scale firms according to their international business
requirements. Thu it transpires from the discussion that franchisee business model paves ways
for development of human resources in the host countries. Thus, franchisee businesses bring
about skill development in the business sectors of the host countries by offering them training
and development opportunities.
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. Thus, it can be pointed out that small businesses can attract high number of customers
using these brands and sell them products of the franchisor concerned. This provides the small
scale firms greater scope of succeeding in the market compared to their competitors which do not
follow the franchisee business model.
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. This means that
consumers are able to avail the international branded products when franchisee enter the market.
This means that the franchisee is able to generate higher revenue by marketing these products to
the customers. They are as result able to give their local competitors more intense competition in

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which the latter generally succumbs owing to multinational company support enjoyed by the
franchisee from the franchisor. This competition and the need to retain consumers encourage the
local companies to bring about innovation of their respective products in order to sustain in the
market. Thus, it is evident that franchisee encourage innovation in the product line of the local
businesses. The local businesses are able to generate higher profits by introducing better version
of their existing products and/or introducing new and innovative products. Thus, it can be
pointed out that franchisees promote innovation in the products of the small scale firms.
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 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. These
local factories in order to comply with the quality standards of Bata have to improve their
production facilities which ultimately benefits them in the long run. Thus, it is evident from this
analysis that franchisee business firms have positive impacts on the local businesses by
encourage them to improve their products to comply with international quality standards.
Negative impacts of franchisee on local businesses:
Franchisee business model have several detrimental impacts on the local businesses in
spite of the fact it does usher several benefits on the latter. The following are the negative
impacts which franchisee business model has on local businesses:

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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. Hussain, Sreckovic and Windsperger (2018) point out in
this respect that the contractual relationship is based on complex legal terms and conditions
between the two parties. It can also be pointed out that the legal execution of the franchisee
contracts are often very complex and time consuming (business.qld.gov.au 2019). The
franchisor, usually multinational companies have dedicated legal departments which oversee the
contracts the companies enter into with third parties including franchisees. The smaller firms on
the other hand may lack legal knowledge or may not have sufficient resources to hire legal
experts. Thus, in order to monitor the execution of franchisee contracts, these small scale
franchisees have to depend on legal firms which attract legal expenditures (Dada, Jack and
George 2016). Multinational companies like KFC as in 2015 charged $ 45000 as franchisee fees,
the building and equipment charged was around $695000 to $ 1.2 million while the startup
expenses ranged from $ 1.3 million to $ 2.5 million (Businessinsider.in. 2015).Thus, it can be
pointed out from this analysis that the franchisees, often smaller firms with limited resources of
their own are subjected to complex and expensive legal procedures and eligibility criteria in
order to perform the contract.
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