(Artículo elaborado por el Mtro. Han van Kasteren, campus UVM Hermosillo)

As the world grows unrelentingly and unstoppably smaller, communication, trade and movement of people reaches a scale and ease hereto unseen. While the benefits are many, globalization also brings with it ethical and legal problems. As of yet, there is no global jurisdiction. Companies from different nationalities sharing a Supply Chain do have a certain measure of leverage; they can demand all partners comply with the same regulations, whether those regulations are in effect in said partner’s country or not, or take their business elsewhere. Increasingly, in lieu of international legislation and/or regulation, companies are turning to international standards, such as ISO. However, for companies in developing nations, their ability for compliance with this strict and convoluted guidelines is, if not much more troublesome than their larger partners, nigh on impossible.
One might say then that one way to circumvent this issue is to eschew the outsourcing Supply Chain altogether, and produce everything in-house, setting up operations wherever necessary and become a Multinational Corporation. Companies can choose to bypass the local focus and sensibilities of a Polycentric approach to management, and adopt a more Ethnocentric model, thereby assuring standards and regulations are adhered to in all operations worldwide. However, by doing so, as mentioned before, they adopt the idea that “what works at home, will work anywhere”, ignoring the fact that while globalization brings with it a certain amount of standardization, our world still consists of thousands of different cultures, each with their own tastes, morals, and cultures, that at times, simply do not mesh. Companies, therefore, must find a delicate balance between standardization and customization. Even Coca-Cola in recent years has adapted its global policy from “Think Global, Act Global”, to “Think Local, Act Global” (Keller, 2008). A prime example of the need to cater to local markets, and the success that can lie therein, is McDonald’s. In the early 2000’s the company experienced a backlash against the perceived unhealthiness of its products, which went so far that they were even forced to close restaurants. The company’s fortunes rebounded with its new growth strategies of offering healthier alternatives, opening McCafé’s, and finally altering its menus to cater to local tastes and diets (Keller, 2008).
We see that managing international standards is a major stumbling block for any Multinational corporation, then more so for international franchises. Franchising, along with its cousin Licensing, has long been considered an easy, efficient, and rapid way to break into an already existing market; it is the most rapidly growing path into entrepreneurship (Daft, 2008). When one opts to franchise, one’s business comes with a built-in audience, and therefore these entrepreneurs are able the usual trappings of Marketing Research, Product Development, and spending whopping amounts of money on marketing to make their presence known. Speaking internationally, U.S. franchisors find more growth abroad than in the U.S. Almost half of Tricon’s restaurants, the mother company of KFC, Taco Bell, and Pizza Hut, is found outside of the United States (Larson, 2008), and 65% of McDonald’s revenues came from abroad (Keller, 2008). These days, the question for franchisors is not where they have franchises, but rather where they do not (Larson, 2007). A famous story involves a Japanese child visiting Los Angeles with his parents, and excitedly pointing out: “They have McDonald’s in America!” (Daft, 2008). Long the domain of food and other hospitality businesses, now these chain-style companies are also moving into other areas, as witnessed by the fact that one of the fastest-growing franchises is the exercise center Curves for Women (Daft, 2008), and the international franchising of Benetton and Bridgestone (Griffin & Pustay, 2005).
To ease entry into a foreign market, as a matter of fact, many franchisors these days set up a Master Franchise in a foreign country, which retains the rights to open franchises in that particular market. This represents an attractive option indeed for any franchisee, as well as the franchisor. For the franchisee, the cost of entry fees and royalties are offset by the lower entry risk of an established brand, trademark, expertise, and customer base, and franchisors can expand easily into new markets without investing in capital or human resources (Deresky, 2006). However, franchisors face the same dilemma as any MNC; the more they standardize the brand, the harder it will be to gain acceptance in a foreign country, the more they adjust to local, they less they are, essentially, needed (Daniels, et al, 2007). Either way, a franchise basically acts as a vertically integrated company, because both parties are interdependent when it comes to the end product that reaches the customer. By using a Master Franchise, the franchisor passes the responsibility of evaluating and overseeing potential franchisers; this is one of the services a franchisee offers a franchisor in return: its knowledge of local markets and cultures (Griffin & Pustay, 2005).
As mentioned, a critical consideration for management is quality control, as this becomes more difficult with greater geographic dispersion (Deresky, 2006). One way to standardize at least part of the process and product is central purchasing, such as Domino’s, which uses mozzarella cheese from New Zealand to be used in all its restaurants worldwide (Daniels, et al, 2007). However, the further the geographic dispersion of a franchise, the harder centralized purchasing becomes, of course. Continuing management help from the franchisor also helps to assure quality standards are maintained; Subway offers ongoing location scouting, operational and marketing support for all its franchisees (Daft, 2008). The most important question any would-be franchisee must ask itself is: “Am I willing to work within the rules and guidelines established by the franchisor?” (Daft, 2008). Unlike licensing, franchising is indeed a specialized license that requires the franchisee another’s intellectual property under the supervision and control of said franchisor (August, 2009), the most common type being a chain-style business, as mentioned before.
As for the franchisors, they must enter into the agreement for the right reasons. Keith Gerson, CFE at Alphagraphics, gives this simple piece of advice to would-be international franchisors: “Don’t do it for the money. Be prepared to do the work, to travel, to support, to do whatever it takes. You can’t leave them alone; you have to make sure they understand the product and the market.”(Larson, 2007). McDonald’s pursues its global expansion by setting down strict rules for the operation of its franchisees’ restaurants, regarding cooking methods, staffing policy, and the design and location of the restaurants (Deresky, 2006). The company has shown that it is not averse to revoking franchises, as happened when it first opened in Moscow; because Russian farmers were not producing potatoes that met its standards, or in France, when restaurants did not maintain the standards set forth in the agreement (Griffin & Pustay, 2005). If a foreign franchisee is producing a substandard product or service that is damaging the brand and is refusing to improve their quality, a franchisor is left with a difficult choice between suing said franchisee in the franchisee’s country, presenting an unfamiliar court and legal system, or just discontinuing the relationship altogether. Both options are costly and difficult (Peng, 2009). Many stories exist of MNCs taking to court local franchisees and partners, only to be handed a loss, as local legislators, familiar with local customs and practices, found the franchisor’s claims foolish, and they had failed to follow sound, accepted and normal local practices (Ricks, 2006).
In the end, a company must balance between articulating clear guidelines to operations, actions and principles that all franchisees must adhere to, and carefully delineate areas where local management is given discretion and autonomy in their decision making (Keller, 2008). Which brings us to Total Quality Management, which was pioneered in post-World War II Japan, by W. Edwards Denning, an American whose ideas about quality, control and constant improvement (known as kaizen) were initially scoffed at in his own country, and not accepted until the 80’s. TQM consists of four main elements to ensure quality control, which are essential to guaranteeing quality in international franchisees’ operations: Employee Involvement, Focus on the Customer, Benchmarking, and, as mentioned, Continuous Improvement (Daft, 2008). If a franchisor can instill this sense of commitment and self-empowerment in every employee in the organization, right down to the bottom, he is left with an entire organization dedicated to producing the quality for which it is known. A direct result of the growth of TQM, and international companies’ dedication to quality has been the implementation of the aforementioned ISO standards. The ever-growing commitment to the idea of a global quality standard, means that this model of a decentralized control philosophy, the idea of infusing quality into every single activity, in addition to the guidelines and standards set out in the original agreement, presents the most favorable method of ensuring quality, and protecting the brand name and reputation of any franchising MNC worldwide.

References

August, R. (2009). International Business Law: Text, Cases, and Readings. (5th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Daft, R.L. (2008). New Era of Management. (2nd ed.). Mason, OH: Thomson Higher Education.

Daniels, J.D., Radebaugh, L.H., & Sullivan, D.P. (2007). International Business: Environments and Operations. (11th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Deresky, H. (2006). International Management: Managing Across Borders and Cultures. (5th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Griffin, R.W., & Pustay, M.W. (2005). International Business: A Managerial Perspective. (4th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Keller, K.L. (2008). Strategic Brand Management: Building, Measuring and Managing Brand Equity. (3rd ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Larson, P. (2007). International Growth Patterns Remain Strong. In F. H. Maidment (Ed.), International business (14th ed., pp. 150 – 152). Dubuque, IA: McGraw-Hill Contemporary Learning Services. (Reprinted from Franchising World, April 2002, pp. 6 – 8).

Peng, M.W. (2009). Global Business. Stamford, CT: South-Western Cengage

Ricks, D.A. (2006). Blunders in International Business. (4th ed.). Malden, MA: Blackwell.