stages of internationalization of brazilian franchises

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STAGES OF INTERNATIONALIZATION OF
BRAZILIAN
FRANCHISES
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ESPM
Postgraduate Program in
International Management - PMDGI
STAGES OF INTERNATIONALIZATION
OF BRAZILIAN FRANCHISES
Thelma Valéria Rocha
Felipe Mendes Borini
Eduardo Eugênio Spers
Mario Henrique Ogasavara
Daniela Khauaja
Adriana Camargo
Pedro Lucas de Resende Melo
Supported by:
Brazilian Franchising Association – ABF
São Paulo
October, 2014
E82
Stages of Internationalization of Brazilian Franchises / Thelma Valéria Rocha … [ et al]. –
São Paulo : ESPM, 2014.
84 p.: il, color, tab.
Postgraduate Program in International Management – PMDGI
ISBN 978-85-99790-26-7
1. Franchises 2. Global Marketing 3. Strategy 4. Internationalization
process I. Rocha, Thelma Valéria II. Borini, Felipe Mendes III. Spers, Eduardo
Eugênio IV. Ogasavara, Mario Henrique. V. Khauaja, Daniela VI. Camargo, Adriana
VII. Melo, Pedro Lucas de Resende.
CDU 339.187.44
PrEFace
Brazilian brands are becoming more popular worldwide. Ambitious, Brazilian
franchisers are overcoming cultural, logistical and tax barriers and expanding
their network operations beyond national borders.
This study, the product of valuable work conducted by researchers with ESPM
(a Brazilian private higher education institution, founded in by professionals in
advertising and marketing), is the third edition of an ongoing series published
every two years since 2010, and proves that, little by little, we are advancing in
the internationalization of Brazilian networks, one of the basis of the Brazilian
Franchising Association (ABF).
With this new study, we have the creation of a historical series that allows us
to compare the internationalization process of Brazilian franchises over time,
and note the different stages these companies are in now.
According to ABF, 65 national brands were found abroad four years ago. In
2012, this number increased to 92 brands and now, in 2014, the updated survey
shows 105 Brazilian franchises abroad – a 62% increase in the process of internationalization of national franchises within that period of time.
We certainly have a world of opportunities to expand Brazilian brands all over
the world. In this sense, as part of its commitment to promote the development
of national franchising, ABF works in association with Apex-Brasil – the Brazilian
Trade and Investment Promotion Agency – and with ESPM in the educational area.
Therefore, I thank ESPM, by way of its Postgraduate Program in International
Management (PMDGI), for this important contribution, as well as the researched
franchising companies. Without them, this research could not have been conducted.
This work deepens our knowledge and provides us more input so that
we can advance further on behalf of the franchising industry and, especially,
on behalf of Brazil.
Cristina Franco
Head of the Brazilian Franchising Association
Summary
Presentation��7
1. Introduction��8
16
2. Internationalization of Brazilian Franchises��
17
2.1 Evolution compared to data from previous studies��
23
3. Conceptual Aspects��
24
3.1 Internationalization stages��
3.2 The role of the decision-maker
27
in relation to internationalization��
28
3.3 Selection of franchisees��
31
4. Findings��
32
4.1 Qualitative analysis results��
35
4.2 Internationalization stages��
40
4.3 Selection of franchisees��
47
5. Recommendations��
51
6. Conclusions��
55
References��
57
Appendix A. Questionnaire��
61
Attachment A. Brazilian Franchises Abroad in 2014��
PRESENTATION
This study was conducted between May and October, 2014, and represents a
continuation of the partnership formed in 2010 between the Brazilian Franchising
Association (ABF), through its Executive Officer, Mr. Ricardo Camargo, and ESPM,
through Professor Dr. Thelma Valéria Rocha, Head of PMDGI.
The topic of “Internationalization of Brazilian Franchises” has become more
important in the Postgraduate Program in International Management (PMDGI) by
ESPM since 2010. In November, 2011, the Brazilian Franchising Internationalization
Study Group (IFB) was enrolled at the National Council for Scientific and Technological
Development (CNPq). This group involves professors from different institutions all
focused on this subject: Pedro Melo, from PPGA-UNIP and PUC-SP, and Moacir
Oliveira, from FEA/USP, and ESPM’S PMDGI professors Thelma Rocha, Felipe
Borini, Eduardo Spers, Mário Ogasavara, Daniela Khauaja and doctoral candidate
Adriana Camargo.
This research report was developed by several members of the IFB Study Group:
Professors Thelma Rocha, Felipe Borini, Eduardo Spers, Mário Ogasavara, Daniela
Khauaja and Pedro Melo, and Adriana Camargo.
PMDGI master’s candidates who took part in the data collection at the ABF
Franchising Expo 2014, held at Expo Center Norte in São Paulo, were: Juliana Chini,
Mirella Oliveira, Renato Bulgarão, Alexandre Cantone and Cristiane Guedes, and
Victor Isaac, from PPGA-UNIP master’s course.
On the part of ABF, the Director of Market Intelligence Rogério Feijó, the
Coordinator of Market Intelligence Vanessa Bretas and the Analyst of Market
Intelligence Kátia Santana also participated in this study.
This report is divided into six sections, starting with the introduction. Section
two brings aspects connected to the internationalization of Brazilian franchises; section three approaches a more theoretical point of view about internationalization
stages, the role of the decision-maker in relation to internationalization, and the
aspects taken into account when selecting franchisees. Section four introduces the
results of the study; section five brings some recommendations and, finally, section
six describes final thoughts.
7
Stages of Internationalization of Brazilian franchises
1. INTRODUCTION
This study describes the challenges faced by Brazilian franchises during the
internationalization process.
The sample was gathered by surveying a population comprised of 105 international franchises (Attachment A) in June 2014, provided access by ABF. Four
interviews were conducted with managers of internationalized franchises, and
60 questionnaires were filled in and certified (Appendix A) by internationalized
and non- internationalized franchises during the official franchising ABF show.
The information used by ABF was surveyed with franchisers.
THE FRANCHISING
SEGMENT IN BRAZIL
Between 2001 and 2013, the growth of the franchising segment exceeded
that of Brazil’s Gross Domestic Product (GDP). In 2013, for instance, while GDP
increased 2.5%, franchises grew by 11.9% (Figure 1).
20.4%
19.5%
16.9% 16.2%
15.6%
12.0%
13.0%
12.0%
14.7%
11.0%
11.9%
9.0%
7.5%
6.1%
5.7%
2.7%
1.3%
3.7%
3.2%
4.0%
5.2%
2.7%
1.1%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GPD
2.5%
0.9%
-0.3%
2011
Franchises
Figure 1. Growth of the franchise segment compared to GDP
Sources: ABF (2013), IBGE (2014)
9
2012 2013
The revenues of these franchises were R$ 115.582 billion in 2013 (ABF,
2014). The top 20 franchises account for over twenty-three thousand units.
The main segments include: Food-related businesses, Cosmetics / Fragrance
and Language Schools.
In Brazil, the largest-growing segment in 2013 in revenues compared to
the previous year was Sports, Health, Beauty and Leisure (23.9%), followed
by the Hotel Industry and Tourism (21.9%) and Personal Items and Shoes
(17.1%), as shown in Table 1.
Table 1. Revenues and growth of the industry per segment
(in billions of Brazilian reais – R$)
Segments
2012
2013
Variable
Sports, Health, Beauty and Leisure
17.87
22.14
23.9%
Hotel Industry and Tourism
5.49
6.69
21.9%
Personal Items and Shoes
6.29
7.36
17.1%
20.58
23.99
16.6%
Education and Training Courses
6.51
7.59
16.6%
Communication, Computing and
Electronics
1.59
1.83
15.1%
Home Equipment and Construction
5.52
6.26
13.4%
Clothing
8.38
9.39
12.1%
Vehicles
3.69
4.12
11.5%
Cleaning & Preservation
1.06
1.07
1.6%
Businesses, Services and Other
Retailing
26.3
25.1
-4.6%
103.3%
115.6%
11.9%
Food-related businesses
Total
Source: ABF (2013)
10
Despite its decrease in revenues, the Businesses, Services and Other Retailing
segment is still the most important segment (22%), followed by Food-related
businesses (21%) and the Sports, Health, Beauty and Leisure segment (19%),
as shown in Figure 2.
In relation to the global scenario, Brazil ranks sixth in the franchising
industry in terms of number of franchises (Table 2), with 114,409 units,
which means a 22.9% increase compared to 2012, when there were 93,098
units in the country.
Businesses, Services and
Other Retailing
1%
3% 2%
5%
22%
Sports, Health,
Beauty and Leisure
6%
Clothing
Education and
Training Courses
6%
Personal Items
and Shoes
7%
Hotel Industry
and Tourism
21%
8%
Home Equipment
and Construction
Vehicles
Communication, Computing
and Electronics
19%
Figure 2. Revenues distribution per segment in 2013
Source: ABF (2013)
11
Table 2. Ranking of Brazil in terms of world units
Ranking
Country
Total units
1st
United States of America
770,368
2nd
China
330,000
South Korea
310,000
4th
Japan
234,146
5th
Philippines
125,000
6
Brazil
114,409
7th
India
100,000
8th
Mexico
71,221
9
Australia
70,000
Germany
66,900
3
rd
th
th
10th
Sources: WFC e ABF (2013)
In number of brands, Brazil ranks more significantly: it ranks third worldwide, with 2,703 (Table 3), a number 33% higher than in 2012, when it ranked
fourth with 2,031 brands.
12
Table 3. Ranking of Brazil in terms of world brands
Ranking
Country
Total units
1
China
4,000
2nd
South Korea
3,034
3rd
Brazil
2,703
4
United States of America
2,500
5th
Turkey
1,843
6th
India
1,800
7
France
1,719
8th
Philippines
1,300
9th
Japan
1,233
10
Canada
1,200
st
th
th
th
Sources: WFC e ABF (2013)
Brazilian franchises are found in 45 countries. The main destination
markets are Portugal and the United States, with 38 and 33 Brazilian franchise brands, respectively. A second group comprises Paraguay, Angola and
Argentina, with 29, 18 and 16 franchise brands each. Figure 3 highlights the
destinations of Brazilian franchises.
In Figure 3 it is clear that franchises are preferred in countries that speak
the same language, such as Portugal and Angola (Portuguese). Other countries, such as Paraguay and Argentina, are interested in Brazilian franchises
for cultural and/or geographical closeness purposes. The United States is,
in general, a destination for the internationalization trend of Brazilian companies because it is the top market for multinationals and the second-largest
market in terms of exporting volume.
13
8
France
10
Spain
33
United States
of America
38
Portugal
3
Israel
9
Italy
8
Venezuela
29
Paraguay
7
Peru
11
Bolivia
10
Japan
5
Lebanon
18
Angola
10
Colombia
13
Chile
14
China
7
United Arab
Emirates
14
Mexico
1
Mongolia
16
Argentina
23 other countries
4
Australia
8
Uruguay
Brazilian Franchises are found in 45 countries.
105 Brands are found worldwide.
It represents 3.8% of total national brands.
Figure 3. Main internationalization destinations of Brazilian franchise brands
Source: ABF (2014)
In Figure 4, it is clear that the number of Brazilian franchise brands in
the last two years has increased in nearly all countries, mainly in Portugal
(from 34 to 38 brands), the United States (from 29 to 33 brands), Paraguay
(from 21 to 29 brands) and Argentina (from 12 to 18 brands).
14
38
Portugal
33
The United States
29
Paraguay
18
Angola
16
Argentina
14
Mexico
13
Chile
11
Bolivia
Spain
10
Colombia
10
Japan
10
9
Italy
Uruguay
8
Venezuela
8
France
8
Costa Rica
8
Peru
7
United Arab Emirates
7
Saudi Arabia
5
Lebanon
5
Austrália
4
England
4
56
Other
0
10
20
2014
30
40
50
60
2012
Figure 4. The evolution of the number of Brazilian franchise brands per destination
country: 2012-2014
Source: ABF (2014)
15
2.INTERNATIONALIZATION
OF BRAZILIAN
FRANCHISES
The internationalization process is fostered by a number of factors that lead
companies to decide on different ways of entering different foreign markets.
The decision to internationalize a franchise can be challenging for the company (FORTE; CARVALHO, 2013). However, this has been a natural, increasing trend for Brazilian franchises.
According to ABF (2013), although only 5% of Brazilian franchises work
on a global basis, this internationalization process grew by 300% in the last
decade alone.
Brazilian franchise networks run businesses in over 60 countries on all continents, accounting for over 800 franchises abroad. This leads to various explanations on adopted internationalization models (MTIGWE, 2006; TODD, 2006).
The search for new markets can be perceived as an attractive opportunity,
because it allows sales to be expanded worldwide. Another reason for the
franchise is that it can use in host countries the same resources and skills that
brought it a competitive edge at home.
The economies of scale and the search for resources in foreign markets is
another reason for international expansion. Knowledge and diversification lead
to less dependency on a single market (PENG, 2009).
According to Khauaja (2010), another aspect to be considered in the internationalization of franchises is the valuation of the brand.
2.1 EVOLUTION COMPARED TO DATA FROM PREVIOUS
STUDIES
In the first volume of this study, Rocha, Borini and Spers (2010) showed
that there are three major aspects that contribute to the internationalization of
franchises: (i) international entrepreneurs’ experience; (ii) business networks
in the foreign market; (iii) the development of differentiated product capable
of being acknowledged abroad.
17
The internationalization of Brazilian multinationals is given more significance in this research Academic area. One example is the ESPM Brazilian
Multinationals’ Observatory, which is an international research center that
has been gathering data from Brazilian companies that have international
operations. According to data from the ESPM Brazilian Multinationals’
Observatory (2014), of the 100 Brazilian multinationals surveyed, the manufacturing sector is the most internationalized sector, accounting for 69%
of the examples surveyed. The Information Technology and engineering
services’ sector comprises 26% of examples and the primary sector / mining is accountable for 5% of examples. The fast internationalization of the
provision of services sector and the migration of companies that formerly
only worked in the primary sector to more intensive manufacturing activities demands special attention.
In the first edition, according to Rocha, Borini and Spers (2010), Brazilian
franchises conducted new operations abroad (on average, five years of international experience) on a small scale, which represented an interesting challenge for the managers in terms of profitability and growth.
In the second edition, based on the findings, Rocha et al (2012) suggested
some managerial implications for the internationalization of Brazilian franchises: (i) to come up with strategic behavior focused on international operation; (ii) to reconcile different strategic attitudes through differentiated organizational structures; (iii) to review the business model to operate abroad; (iv) to
define a single global brand identity and to adjust the marketing mix components; (v) to invest in the awareness of the foreign market; (vi) to coordinate
and assess the results of marketing campaigns; (vii) to take advantage of the
current scenario; and (viii) to see internationalization beyond sales.
Comparing the results of 2010 to 2012, Table 4 shows a 41% increase in
the number of internationalized franchises: from 65 in 2010 to 92 in 2012.
Between 2012 and 2014, there is an increase of 14% and a total 62% growth
in the last four years.
18
Table 4. Variation in terms of number of countries from Brazilian franchises abroad
# of Countries
Abroad
2010
2012
2014
(2010 – 2014)
5 or more
16
15
22
+ 38%
2 to 4
21
27
32
+ 52%
Only 1
28
50
51
+ 82%
Total of
Internationalized
Franchises
65
92
105
+ 62%
Sources: Rocha, Borini e Spers (2010); Rocha et al (2012)
Considering the distribution per number of countries, there was growth
in Table 4 in the number of franchises in one country, from 28 companies in
2010 to 51 in 2014; from 21 companies to 32 running in two to four countries;
and a variable from 16 to 22 companies in five countries or more in 2014.
The 22 franchise networks working in five or more countries are listed
in Table 5 distributed per segment, with the list of the countries where they
operated in 2014 and 2012.
Table 5. The 22 internationalized franchise networks in five or more countries
Segment
Personal
Items and
Shoes
Brand
Via Uno
# of
Countries
2014
18
# of
Countries
2012
25
Countries in 2014
South Africa,
Argentina, Chile,
Costa Rica, Cuba,
United Arab Emirates,
Philippines, France,
Guadalupe, Italy,
Jordan, Mexico,
Panama, Paraguay,
Peru, Portugal,
Dominican Republic
and Curacao
To be continued...
19
Table 5. Continued
Segment
Beverages,
Coffee,
Pastries,
Snacks
Personal
Items and
Shoes
Personal
Items and
Shoes
Language
Schools
Brand
Showcolate
Carmen
Steffens
Dumond
CCAA
Language
Schools
Wizard
Idiomas
Beverages,
Coffee,
Pastries,
Snacks
Fabrica di
Chocolate
# of
Countries
2014
18
14
13
11
11
10
# of
Countries
2012
Countries in 2014
9
Chile, Mexico, Peru,
Panama, Guatemala,
Portugal, Venezuela,
Oman, Lebanon, Saudi
Arabia, Qatar, Kuwait,
Bahrain, United States
and Canada
13
South Africa, Angola,
Argentina, Australia,
Bolivia, Canada, Spain,
the United States,
France, Mozambique,
Paraguay, Portugal,
Uruguay and Chile
10
South Africa, Angola,
Saudi Arabia, Canada,
Costa Rica, United
Arab Emirates,
Philippines, Lebanon,
Oman, Paraguay,
Kuwait, Tunisia and
Mongolia
11
Argentina, Australia,
Chile, El Salvador,
Spain, the United
States, England, Italy,
Japan, Mexico and
Portugal
8
China, Colombia,
the United States,
Guatemala, England,
Ireland, Japan,
Paraguay, Mexico,
Angola and Costa Rica
9
Australia, Costa Rica,
Spain, England, Japan,
Mexico, Portugal,
Dominican Republic,
Venezuela and Kuwait
To be continued...
20
Table 5. Continued
Segment
Communication,
Computing
and Electronics
Clothing
Brand
TOTVS
Cantão
# of
Countries
2014
10
9
# of
Countries
2012
Countries in 2014
17
Argentina, Mexico,
Chile, Paraguay,
Portugal, Uruguay,
Bolivia, Peru, Colombia
and Angola
6
Germany, Colombia,
the United States,
France, Italy, Portugal,
Australia and Greece
Clothing
Colcci
9
8
Guatemala, Saudi
Arabia, Portugal, Spain,
Japan, the United
States, Réunion, Malta
and Chile
Clothing
Lilica & Tigor
8
3
Bolivia, Colombia, Peru,
Chile, Italy, Portugal,
Costa Rica and Lebanon
Cosmetics
and
Fragrances
O Boticário
8
6
Angola, Saudi Arabia,
the United States,
Paraguay, Portugal,
Venezuela, Japan and
Mozambique
Automobile
Services
Localiza
Rent a Car
8
8
Argentina, Bolivia,
Chile, Colombia,
Ecuador, Paraguay,
Peru and Uruguay
Personal
Items and
Shoes
It Beach
7
N/D
Language
Schools
Escola Fisk
6
6
France, Italy, Israel,
Portugal, Spain, Chile
and Argentina
Angola, Argentina,
Bolivia, the United
States, Japan and
Paraguay
To be continued...
21
Table 5. Continued
Segment
Brand
# of
Countries
2014
# of
Countries
2012
Personal
Items and
Shoes
Victor Hugo
6
N/D
Personal
Items and
Shoes
Arezzo
5
4
Bolivia, Paraguay,
Portugal, Venezuela
and China
Beauty, Health
and Natural
Products
Hoken
5
3
Spain, Paraguay,
Portugal, Bolivia and
Nigeria
Hering Store
5
4
Bolivia, Paraguay,
Uruguay, Venezuela
and Chile
Personal
Items and
Shoes
Maz Brasil
5
5
Spain, the United
States, Israel, Lebanon
and Portugal
Cosmetics
and
Fragrances
Truss
Cosmetics
5
5
Angola, Ecuador, the
United States, Japan
and Venezuela
Language
Schools
Wise Up
5
N/D
Argentina, Colombia,
Mexico, the United
States, and China
Clothing
Countries in 2014
The United States,
Thailand, United Arab
Emirates, Italy, England
and Canada
Source: ABF (2014)
Comments: N/D Unavailable information; New businesses
Table 5 shows that the industry segment of Personal Items and Shoes stands
out, followed by Language Schools. It should be noted that 16 franchises have
been working in five or more countries since the first study conducted in 2010,
which evidences the long-term commitment to operations abroad.
22
3.CONCEPTUAL ASPECTS
The conceptual aspects included in this study are: the actions taken by the franchises during the internationalization process; the role of the decision-maker;
and the selection of franchisees.
3.1 INTERNATIONALIZATION STAGES
The internationalization stage of the franchise network relates to its phase
of maturity and commitment with international operations. This theory was
applied to the sector of franchises considering the North-American scenario in
the 1990s. The United States is the largest franchise network market and the
country with the highest number of internationalized networks.
The internationalization strategy had become part of the agenda of American
networks in the 1990s, as pointed out in a study conducted by McIntyre and
Huszagh (1995).
In the beginning of the ‘90s, only 20% of American networks operated
abroad. Up until then, the focus had been on the growth of the American
domestic market and developing the domestic franchising mechanisms as a
major concern. The franchising mechanisms represented aspects related to the
sustainability of a franchise network, in particular: franchisee support, brand
development, increased control capacity and unit monitoring, among others.
Cavusgil and Nevin (1980) developed a model that described the path followed by North-American companies by the time of internationalization via
exporting. McIntyre and Huszagh (1995) adjusted the framework considering the reality of the North-American franchises in their internationalization
stages, as shown in Figure 5.
The model suggested by the authors has four stages. These stages have
dependence, that is, to reach the highest stage of commitment to and understanding of the international stage, the franchise network follows a path that
generates the additional knowledge needed to move to the next stage abroad.
24
STAGE 1
Domestic Franchising
Domestic franchising exclusively.
STAGE 2
Experimental involvement
Preliminary evaluation of international
expansion, leading to minimal involvement.
STAGE 3
Active involvement
Systematic exploration of expanding
international franchising activity.
STAGE 4
Committed involvement
Long-term commitment to franchising
in international markets.
Figure 5. Stages of internationalization of franchise system
Source: McIntyre and Huszagh (1995, p. 41), based on Cavusgil and Nevin (1980, p. 68-71)
Figure 5 outlines the four stages of the internationalization process and
identifies critical activities pertaining to franchise systems.
The initial stage comprises domestic franchising operations, where the
franchising network is less complex and more knowledgeable of the market
aspects. For the franchising network, domestic operations are an opportunity to test the franchising component, because if international operations
are required, control, monitoring, support and branding skills will be more
rigorously demanded.
25
Through domestic distribution, companies procure marketing awareness
and consumer characteristics that can be conveyed to other geographical locations, enabling ‘lateral growth’ and the establishment of businesses in new settings ( JOHANSON; VAHLNE, 1977, p. 28).
Stage 2 comprises franchise networks in experimental stages, that is, with
one or few units abroad, low financial network commitment and a low number of lines of businesses. In general, the main intent is to test the international market and the franchising mix. This initial test is useful for the decision
regarding the future commitment with international businesses.
According to McIntyre and Huszagh (1995), in stage 2 the main executive’s interest is one of the crucial factors in the internationalization decision. Some franchisers test the new market with their own units before
starting the franchising framework; some companies give up international
businesses mainly because of the lack of financial and managerial resources
to keep businesses running.
Stage 3 comprises the franchise networks with active involvement abroad,
that is, companies with ongoing international growth.
After entering the foreign market, the success of international franchises
fosters new initiatives. In this active stage, most franchises expand their
operations at a constant, slow pace so as to meet the legal and managerial
requirements of every new market (MCINTYRE; HUSZGH, 1995). In general, these companies tend to look for international markets with psychic
and cultural similarities so as to reduce risks and increase the likelihood of
success of those business operations.
Stage 4 corresponds to the highest level of committed involvement abroad.
At this stage, the companies have been through the previous stages and have
the financial and managerial skills to grow at international levels. These networks are in different countries and there are a significant number of units
in every country. The investments made abroad are of major importance and
show commitment to keeping and expanding the business abroad.
26
In the empirical portion of this study, the interviewed companies were asked
to describe their internationalization stage. In addition, based on the number
of countries they are active in, we sorted those internationalized Brazilian
companies throughout the four stages.
3.2 The role of the decision-maker in
relation to internationalization
According to McIntyre and Huszagh (1995), the interest of the senior executive plays a key role in the internationalization decision. In this section, the role
of the main executive is analyzed in relation to the internationalization decision.
In the globalized world, internationalization is not to be perceived as the
only solution for all challenges faced by companies. However, although international growth is but one possible growth strategy (ANSOFF, 1991), in many
situations it is a necessary condition, not only to strengthen the competitive
edge, but also for the company’s survival (CASSANO, 2007).
The firm internationalization process must be considered and planned in
advance so that eventual problems are minimized regarding its entrance into
a new cultural, social, political and economic reality. Some aspects must be
carefully taken into account, such as the firm’s decision to enter a particular
country and its choice of entry mode.
The first refers to choosing the country and, more specifically, the region.
In other words, it answers the question: where can you direct internationalization? There are two generic strategies: market diversification and market
concentration (BRADLEY; GANNON, 2000).
By diversifying, the aim is to reach high yield without compromising too
many resources in a number of different markets. By concentrating, the company devotes high levels of marketing effort to each one of the few locations in
an attempt to significantly participate in those markets. The firm only accesses
other markets after establishing a strong position in the first market.
27
The entry mode choice, in turn, is related to the definition of the process,
which may be: (i) export, with the firm located and administratively controlled in the home country; (ii) licensing or franchising, with location in the
host country and contractually controlled; (iii) alliances and joint-ventures; iv)
direct investment, with the firm located and administratively controlled in the
host country (BUCKLEY; CASSON, 1998).
The franchiser sees the internationalization and its process not as something unique, but as a strategy comprised of parts, that is, variables that
describe or influence these parts (LANCASTER, 1966). In decisions that
involve the internationalization of a franchise, another aspect that is related
and that has influence on the decision-maker pertains to the difficulty in
assessing all relevant variables.
Rational thinking is the lack of perception errors in the decision-making
process. Because the franchise manager cannot think of all variables, his choices
and judgment process is not prejudice-free, that is, purely rational (decisions
based on logic, statistics, maths and probability thinking).
Bounded rationality (SIMON, 1957) does not imply something negative;
it just means there is alogic in decision-making that varies from franchisee to
franchisee. The main intent of the qualitative research conducted in this study
was to identify and assess these differences.
3.3 SELECTION OF FRANCHISEES
The rational or irrational thinking of the manager also influences the way
he selects the franchisees.
The franchise has been widely used as a business operation in the internationalization process of companies within the retail sector.
The franchise system is beneficial both for the franchisor and for the franchisee. The franchisee has access to a brand and a business concept that is
already known in the market, as well as to training courses and marketing and
28
management systems. The franchisor has access to the market and can grow
his business with low investment.
Choosing the market where the company will establish its new unit is an
important decision to be made by the franchisor. According to Anne Doherty,
researcher from the Glamorgan University (England), a major aspect to be considered by the franchiser prior to choosing the market is the adequate selection
of the franchisee (DOHERTY, 2009).
This relates to the research by Americans Thani Jambulingam, Saint Joseph’s
University, and John Nevin, University of Wisconsin, who conducted a study
about franchises in the United States ( JAMBULINGAM; NEVIN, 1999). The
research showed that the franchisee selection criteria play an important strategic role and that the aspects considered in the selection of the partner are
accountable for the success of franchises’ operations.
The main considerations for proper franchisee selection, according to
Jambulingam and Nevin (1999), Grewal et al (2011) and Brookes (2011) involve
the following:
Financial aspects – mainly related to the financial capacity of the partner
(franchisee) in investing his own resources in the franchise. Also, they might
be connected to the capacity of procuring external financing, once there is
the need for collateral of the franchisee to procure external resources;
• Personal aspects – related to an entrepreneurial and innovative attitude as
well as initiative in a franchisee, and the personal commitment and level of
enthusiasm in relation to the franchise. It also includes the personal willingness to share goals and aspirations common to the brand or the franchiser,
which is connected to the so-called ‘perfect match’ between partners;
• Management aspects – related to the experiences and management skills
of the franchisee in dealing with the business management. These skills
relate to the previous experience of running a business similar to that of
the franchise, another type of business, having had a management position
or having worked as a freelancer;
•
29
•
Marketing aspects – related to the marketing skills of the franchisee for the
business operation. These include knowledge of the chosen local market
and of potential clients and competitors. And also, the acquired capacity
with the experience in dealing with sales, servicing the public and marketing management.
Controlling the quality of the franchisees, by using appropriate franchisee
selection criteria, significantly influences the success of the business.
How Brazilian franchises select their franchisees, both in Brazil and abroad,
was assessed in the empirical section of this study.
30
4.FINDINGS
The field research results are described in this section. Two methods were
followed: a quantitative approach and a qualitative one, with the triangulation of results.
Qualitative research was conducted by in-depth interviews with four
managers who are in charge of the internationalization processes. These
managers were appointed by ABF.
The survey method was applied in the quantitative research. Thus, a
questionnaire was created (Appendix A), answered by 60 internationalized
and non-internationalized franchise managers, with the purpose of measuring the level of internationalization of these companies and their franchisee
selection process.
The data-gathering involved filling in questionnaires, and was directed
at franchise directors. In this case, 60 questionnaires were filled in during
the ABF Show in July, 2014, followed by an online version sent via e-mail.
From the original population of 105 internationalized Brazilian franchises (based on the ABF mailing list in June, 2014 – Annex A), a total of 20
respondents returned the questionnaires, representing a 19% response rate.
In addition, a sample of 40 franchise firms that operate domestically were
validated and used in the analysis.
Confidentiality in relation to the identification of the franchise and the interviewees was ensured throughout the entire research process. Consequently,
the results are presented in an aggregate form and respective respondents
are only referred to as “respondent” in this report.
4.1 QUALITATIVE ANALYSIS RESULTS
Qualitative research was conducted with in-depth interviews of four franchises so as to assess the decision-making process regarding the challenges
and advantages of internationalization.
32
Qualitative data from previous research concerning the internationalization process of other franchises were also assessed in the analysis.
Although the number of respondents is limited, there were in-depth
interviews based on semi-structured techniques, intended to identify personal values involved in the decision and the product image and configuration technique, which seeks to assess the central and peripheral aspects – in
this case, the internationalization process and its advantages. Therefore, it
is not possible to generalize the results to all franchises, but we can say that
these results were found and perceived as relevant for the interviewed franchises, and that can be useful for other franchises in the same internationalization process stage.
Some relevant aspects of the results collected are described in the following:
Internationalization challenges
Some of the difficulties of internationalization mentioned by the respondents during the qualitative research are more operational issues; for instance:
red tape, taxation, logistics, and the legal statutes of each country, as well as
the procurement of inputs—the latter especially for companies that depend
on the importing of products. On the other hand, issues related to marketing
strategies are: understanding and adapting to the culture for each country,
different languages, the search for good franchisees and the scale to operate
abroad, among others.
Brand management abroad
One of the concerns raised, especially by those who have been working
abroad for longer, is the monitoring of the store standard and consequent
protection of brand positioning.
33
One respondent pointed to this, writing: “…it is necessary to keep the
brand´s DNA abroad….” Elsewhere it was noted by a respondent that the
franchise “should explore its whole potential in Brazil and then look for foreign markets.”
Advantages of internationalization
The following stand out among the advantages arising from internationalization: brand consolidation, gains in the economies of scale, risk reduction,
business valuation, learning, experience, multiplication (growth), innovation,
profitability, and the transfer of knowledge, among others.
Internationalization process
The internationalization process can be planned on a higher or lower level.
In the case of a more thoroughly planned process, there are more strategic
variables, such as the financial variables, and those related to the corporate
structure abroad. As for the unplanned internationalization process, usually
arising from a market opportunity or sudden partnership, there are issues
concerning flexibility, such as the need to adjust to unexpected situations
that could have been planned or expected, and relationship issues, mainly
resulting from opportunity franchisee attitudes.
In the research, there are reports of the lack of commitment of the partner abroad or the lack of adequacy to the store standards, especially by franchises that did not have time to establish a solid relationship with the franchisee abroad.
34
Impressions about the Brazilian market
The search for visibility, news, technology and innovation are relevant variables for those who wish to bring imported products as a franchise in Brazil.
The Brazilian consumer is still used to valuing what is produced outside.
One of the positive aspects mentioned during the interviews was the
positive image of Brazil in the international market because of the World
Cup and the Olympic Games. One of the respondents said, “Brazil is hot
now”. Following the success of the Brazilian franchise framework, it is possible to follow in the opposite direction, that is, to export the franchise to
other countries.
Because of its enthusiasm and growth, the Brazilian market can be a
nice option for companies abroad that manufacture products to grow. And
an opportunity for Brazilian entrepreneurs who want to open franchises in
Brazil with imported products.
4.2 INTERNATIONALIZATION STAGES
The four internationalization stages we used in this study were proposed by McIntyre and Huszagh (1995) after adjusting for the experience of
American franchising companies in the 1990s based on the stages developed
by Cavusgil and Nevil (1980) for American exporting companies.
The four stages are: 1) Domestic Franchising; 2) Experimental Involvement;
3) Active Involvement; and 4) Committed Involvement, as illustrated in Figure 6.
Stage 1, referred to as Domestic Franchising, refers to the stage experienced by franchising networks that do not run businesses abroad.
According to ABF, there were 2,703 franchise networks in Brazil in
December, 2013. 206 of those were foreign franchises, and 2,497 Brazilian
franchise networks. Off the latter, 105 worked abroad, that is, 5% of the total.
35
STAGE 1
Domestic Franchising
Domestic franchising exclusively.
95%
2,376
Brazilian
networks
(Dec/2013)
STAGE 2
Experimental involvement
Preliminary international expansion growth,
leading to minimum involvement.
49%
51 networks
abroad
STAGE 3
Active involvement
Systematic exploring of the international
expansion of the franchising activity.
30%
32 networks
abroad
STAGE 4
Committed involvement
Long-term commitment with franchising
in international markets.
21%
22 networks
abroad
Figure 6. Stages followed during franchise internationalization
Source: Theory proposed by McIntyre and Huszagh (1995, p. 41), based on Cavusgil and Nevin
(1980, p. 68-71) with data from the Brazilian scenario
In other words, 95% of the Brazilian franchise networks (2,376 networks in December, 2013) are within stage 1, where the major concerns
of the franchises are to grow in the country and consolidate their position
in the local market.
In the Domestic Franchising stage, domestic operations are an opportunity to test the franchising mix, because if international operations are
required, control, monitoring, support and branding skills will be more
intensely demanded.
So as to measure their intent to become internationalized, 40 domestic network managers answered questions 1 and 2 in Appendix A. 30% of
36
respondents said they have plans to grow internationally; 75% say they
have products and services that can be internationally franchised, but only
18% say they always look for opportunities in International Franchising.
The information included in Table 6 shows that nearly a third of networks
running businesses in the domestic market are planning to grow internationally
because they believe they have products and services that can be franchised.
Table 6. Internationalization intention for Stage 1 companies – Domestic Franchising
Planning for the franchise
to grow internationally.
30% agree
There are products and services that
can be internationally franchised.
75% agree
Always look for opportunities
in International Franchising.
18% agree
Source: Data collected at the ABF Show (2014)
However, many of these networks (77%) are not looking for opportunities
abroad, because they believe the operation requires more costs than expanding
businesses in Brazil. 67% believe this operation is riskier than expanding businesses in Brazil and 79% believe the operation is less profitable than expanding businesses in Brazil, showed in Table 7.
It is clear that the impression of greater costs, greater risks and lower
profits are aspects that influence the process of non-internationalization of
Brazilian franchises.
Table 7. Obstacles to internationalization
It involves greater costs than
expanding businesses in Brazil.
77% agree
It involves greater risks than
67% agree
It is less profitable than
79% agree
Source: Data collected at the ABF Show (2014)
37
To sort out the basis of internationalized franchises in stages 2 to 4, the
number of countries where they operate was used as proxy, in that stage 2
covers firms that operate in one country abroad, stage 3 those that work in
two to four countries, and stage 4 those that work in four or more countries,
as shown in Figure 6.
To check the accuracy of this distribution, we crossed the responses of the
internationalized respondents about which internationalization stage their
companies are at (please refer to the Appendix A questionnaire) with the number of countries they operate in. The only difference was noticed with companies that work in four countries: half only have one unit per country where
they work abroad and share more stage 3 characteristics, with active growth
and a slow pace. The other half are growing faster and show characteristics of
long-term commitment work, going from stage 3 to stage 4.
So franchise networks that work in a single country are classified as stage
2, Experimental Involvement. The networks that work in two to four countries are classified as stage 3, Active Involvement, and those that work in five
or more countries are classified as stage 4, Committed Involvement.
It is worth mentioning that the percentage distribution of Brazilian franchise
networks in every stage has been stable over the course of this series of studies
(2010, 2012 and 2014), where stage 2 is around 49% of internationalized networks, stage 3 around 30% and stage 4 around 21%, as illustrated in Figure 7.
Stage 2 relates to the franchise networks in experimental stages, that is,
networks that are experiencing running businesses abroad with low financial
commitment of the network and in few markets.
Stage 2 –
Experimental Involvement
21%
49%
Stage 3 –
Active Involvement
Stage 4 –
Committed Involvement
30%
Figure 7. Distribution of Brazilian franchise networks throughout stages 2, 3 and 4
Source: Authors (2014)
38
The main purpose of many franchise networks at this stage is to test the
international market and the franchising mix. This initial test influences the
decision about the future commitment with international businesses. And the
financial result of this initial operation many times encourages the networks
to continue abroad or not.
In the case of Brazil in 2014, there are 51 companies in this stage, representing almost half of the total number of internationalized companies. It is
worth mentioning that at this stage there is some fluctuation, where new networks start and others sometimes stop their businesses abroad. For instance,
between 2012 and 2014, new networks started their businesses and 10 networks interrupted their businesses abroad. The attempted start and subsequent return must be perceived as an opportunity to learn in order to try to
enter the market again in the future.
Table 8. Evolution of the participation of internationalized franchises: 2010-2014
Internationalization
stage
# of
countries
where they
work
2010
2012
2014
Franchises
Participation
Franchises
Participation
Franchises
Participation
Experimental
involvement
Only 1
country
28
43%
50
54%
51
49%
Active
involvement
2 to 4
countries
21
32%
27
29%
32
30%
Committed
involvement
5 or more
countries
16
25%
15
16%
22
21%
65
100%
92
100%
105
100%
Total Internationalized
Franchises
Stage 3 comprises the franchise networks with Active Involvement abroad,
meaning networks with continuous growth in other countries and legally and
administratively known by these countries. However, they tend to limit themselves to foreign countries with psychic and cultural similarities so as to reduce
risks and increase the likelihood of success of these operations.
39
In the case of Brazil in 2014, there are 32 companies, or 30% of the total of
internationalized companies, that work in two to four countries. It should be
noted that after entering the foreign market, the success of foreign franchises
fosters new initiatives. In this active stage, most franchises expand their operations at a slow, constant pace so as to meet the legal and managerial requirements of every new market (MCINTYRE; HUSZAGH, 1995).
Stage 4 includes the franchise networks with Committed Involvement
abroad. These networks met the requirements of the previous stages and are
internationally engaged, showing diversification of countries and concentration
of units in each country, that is, they not only work in a large number of countries, they have developed in every country (MCINTYRE; HUSZAGH, 1995).
In the case of Brazil in 2014, there are 22 companies, or 19% of the total
of internationalized companies, that work in five or more countries. The list
of companies is available in Figure 6. These networks have worked abroad for
longer and many started operating abroad in the 1990s. These companies are
usually worried about the management of the brand abroad, and the operation of the activities is more coordinated and integrated in the many countries
in which they do business.
4.3 SELECTION OF FRANCHISEES
Based on the theoretical aspects related to the selection of franchisees, the
intention of the field research was to answer the following question: “When a
franchise is internationalized, is there greater pressure in selecting partner in
terms of financial, personal, managerial and marketing aspects as compared
to a domestic franchise?”
This analysis was based on the answers given to questions 3, 4 and 5 of
Appendix A, answered by 60 franchise networks: 40 domestic and 20 Brazilian
internationalized franchise networks.
40
Financial aspects
Figure 8 illustrates each question inherent to the financial aspects and the average score of the internationalized Brazilian franchises and domestic franchises.
Both groups perform a thorough analysis of the franchisee credit situation and his wealth – franchises usually tend to choose franchisees that use
resources of their own.
Figure 8 shows that, in general, internationalized franchises are more stringent in relation to financial aspect when selecting an international partner; however, this difference is not statistically significant in any situation. Therefore,
we can conclude that:
In terms of financial aspects, the austerity when selecting a partner
for an internationalized franchise is not greater when compared to a
domestic franchise.
Financial Aspectsss
Prior to selecting the franchisee,
the franchise performs a
thorough credit analysis
4.80
4.60
Prior to selecting the franchisee,
the franchise performs a
thorough wealth analysis
4.30
4.30
4.20
The franchise tends to choose franchisees
that use resources of their own
4.10
The franchise shows no preference for
the source of origin of the capital
that will be invested by the franchisee
3.10
3.00
2.40
The franchise tends to prefer franchisees
who use external financing sources
2.20
Internationalized
Domestic
Figure 8. Financial aspects
41
The result shows that it is common for franchises in both groups that the
financial aspect that matters the most at the selection is the wealth and credit
condition of the partner. As for the origin of the resources, the franchisers
prefer partners who rely on their own resources for investment.
Personal aspects
Figure 9 shows every question related to personal aspects and the
average score of the internationalized Brazilian franchises compared to
domestic franchises.
Personal Aspects
5.00
The franchise prefers
franchisees with initiative
4.73
franchisees with
enthusiasm and commitment
5.00
4.88
The franchise prefers franchisees
with similar purposes and
goals as the franchise
4.98
4.65
franchisees who are
business-oriented
4.78
4.58
franchisees with
university degree
Internationalized
4.11
3.63
Domestic
Figure 9. Personal aspects
In general, internationalized franchises are more rigorous in relation to
personal characteristics when selecting an international partner, especially
in relation to wanting this partner to show some initiative, have a university
42
degree and be business-oriented. There is a significant difference in these three
situations. Therefore,
In relation to personal aspects, internationalized franchises usually prefer
franchisees with initiative, a university degree and a business outlook.
This result is in line with conclusions reached by the ESPM franchise study
group, which, during the research conducted, noticed that innovation is part
of the profile of the franchise and the franchiser abroad.
Managerial aspects
Analyzing this characteristic for national and international franchisees,
Figure 10 shows each question pertaining to the managerial aspects and the
average score of the internationalized Brazilian franchises compared to domestic franchises.
Managerial Aspects
who will personally manage
the business on a daily basis
4.56
4.45
who had already had
management positions
3.61
3.08
with previous experience in a similar
business to that of the franchise
3.11
2.73
franchisees who used to
work as freelancers
3.06
2.60
with another kind of business
besides the franchise
Internationalized
2.28
2.58
Domestic
Figure 10. Managerial aspects
43
In general, it is noted that internationalized franchises are more rigorous
in management when it comes to selecting the international partner, except
for the preference for another kind of business. However, there is no significant difference in all aspects. Therefore,
As for managerial aspects, the austerity when selecting a partner
domestic franchise.
The result shows it is common for the franchises of both groups that the
most important financial aspect at selection is the availability of the franchisee to manage the business on a daily basis. It matters if the franchisee had
had a management position or previous experience in similar businesses.
Marketing aspects
By analyzing this aspect for national and international franchisees,
Figure 11 shows each question pertaining to the marketing aspects and
the average score of the internationalized Brazilian franchises compared
to domestic franchises.
It is noted that, in general, internationalized franchises are more stringent in marketing terms when selecting the international partner. However,
the difference between the aspects is not meaningful, except in relation to
marketing experience, when a marginal difference is noticed. Therefore,
As for managerial aspects, the austerity when selecting a partner
domestic franchise.
44
Marketing Aspects
4.44
who know the local market
4.38
4.11
with experience in public service
4.33
4.00
with experience in sales
3.60
3.39
The franchise prefers franchisees with
experience in marketing management
Internationalized
2.88
Domestic
Figure 11. Marketing aspects
The result shows internationalized franchises prefer – with a slight
superior trend – partners with previous knowledge in marketing and sales.
As for market and public knowledge, they both work in similar ways.
Relationships
In the relationship with the partner or franchisee in Brazil or abroad,
the magnitude of the partnership or joint work, exchange of information and flexibility in the agreement or proclivity to negotiation are all
assessed (Figure 12).
45
Relationships
In the relationship with the partners,
there is flexibility when
changing agreements
3.39
3.15
the parties involved are committed
to improvements that could
benefit the relationship as a whole
and not only the parties individually
4.88
4.68
problems are dealt with by
the parties as a set rather
than individual matters
4.22
4.28
there is frequent, informal
information exchange, not only as
specified in the agreement
4.28
4.18
any information can help
one party or the other
0.00
Internationalized
4.50
4.28
1.00
2.00
3.00
4.00
5.00
6.00
Domestic
Figure 12. Relationships
For all questions, agreement is almost unanimous. Agreement for internationalized franchises is slightly superior compared to national franchises.
46
5.RECOMMENDATIONS
The recommendations described in this study are divided by the stages the
franchise networks are in in their internationalization processes.
For the networks in Stage 1 – Domestic Franchising, we recommend they
pay more attention to opportunities abroad. They can see operations abroad
as riskier, costlier and less profitable, but they must be open to experience this
new process to internationalize the company.
The recommendation includes the creation of a plan, beginning with the
selection of a country where they would like to start working. Apart from the
importance of the franchise’s product for the target market, the plan would
also include getting to better know the culture and habits of that country.
The financing for the initiative can be of its own, via BNDES (the National
Bank for Economic and Social Development) or other bank institutions. Finding
a partner abroad that agrees to join this entry process can also be valid. It is
worth saying that entering another market will bring notable experience to
the company which can be utilized by the business in Brazil, which can then
lead to significant improvement for the domestic operation.
For networks in Stage 2 – Experimental Involvement, we recommend
that they should choose a country, create an action plan and study the market very thoroughly, so as to understand the specific franchise-related legislation, as well as product or service-related legislation. In addition, they should
pay special attention to the fine print of agreements and be careful of scams.
It is also important to get to know the culture by periodically visiting the
units abroad—every three months at least—with the intent to check on how
the brand is being used. At this stage, the options are widely based on the
interests of the entrepreneurs and even on their dreams of seeing the company operating in that country.
Issues such as contracting people and procuring input are strategic
and the respondents seemed quite concerned. At this stage it is important to procure resources to grow; therefore, the operations must be economically feasible, as this will allow the company to evolve to other stages.
In case the operation is not financially successful, it is important not to despair.
48
Many companies learn from past errors; that is why it is important to make
constant visits to the franchises.
For the networks within Stage 3 – Active Involvement, we recommend
they understand growth can be slow during this stage and that it pays more
to open more units in one single country than it does to start operating in
another country.
The intention here is to gain scale, with a number of units in the same
country that pay for the operation, and then open up a new unit in another
country. This makes it easier to control the operation and allows for lower
product and communication adjustment costs.
At this stage, the brand becomes relevant, and the more units the franchise
network has, the greater the concern with the brand management in those
countries. Managing the operations abroad is essential, and we recommend
that companies have a department devoted to the operations abroad, a person
in charge of these activities and that this structure is kept over time.
According to this study, the franchise networks that keep the same manager over time will achieve better results with the operation, because the entire
process involves learning, and whatever happens in one country can be used as
a lesson when operations are started in another country. Consequently, when
managers are exchanged, part of this experience is lost.
For networks in Stage 4 – Committed Involvement, we recommend that
they pay closer attention to: brand management abroad; product or service
mix standardization; integration of the activities of the operations abroad; and
to the integrated coordination of franchises.
Major companies divide the world into regions and manage marketing and
advertising materials in a standardized fashion per region. We recommend
more internationalized franchises think this way and build the brand in one
country, then in one region, and then turn their attention to global brands.
Another aspect that becomes more important at this stage is the standardization of operations. As the number of stores increases, operations need to
be more standardized so they can be replicated; logistics and systems issues
become more and more important. The integration of the units also becomes
49
relevant and the company’s management becomes more complex, which
requires a professional executive team.
Keep in mind gradualism is one of the main aspects of the growth of franchise networks abroad, and the longer they keep these operations in place, the
more they learn about the markets where they operate.
50
6.Conclusions
When one observes the franchise networks abroad over the last four years
(please refer to the 2010 and 2012 studies), one can notice significant growth
towards franchise internationalization. In 2010, in the first version of this study,
there were 68 brands of internationalized franchise networks. In 2012, this
number increased to 92 networks, and then to 105 in 2014. This 62% growth
in four years is significant and must be analyzed.
Dividing these companies by the stages experienced in the internationalization processes allows visualizing them in four different groups. Among the
companies within Stage 1 – Domestic Franchising, 30% want to go abroad,
but many times have no clue about how to do that. They fear high costs, risks
and low profitability. For them, a partnership with ABF and APEX might be
beneficial, as well as choosing a target country to start in, with expectations
in line with reality and planning – always paying attention to agreements and
charlatans. They account for 95% of Brazilian franchise networks, and total
2,376 companies. A thorough assessment of this group can be interesting in
future studies, with more detailed analyses per sector and development of
operations domestically.
The 105 internationalized franchise networks can be divided into three
groups. Stage 2 comprises the group of companies working with Experimental
Involvement abroad. There are 51 such companies in 2014, including 16 new
companies compared to the list in 2012 and against 10 that left the list over that
same period of time. This is the main peculiarity of this stage: to experience
and go on if successful. To supervise the stores abroad, oversee the products,
learn other cultures and other languages, even if operating in only one country, is an interesting challenge in itself. To grow, it will be necessary to establish a framework that can be replicated and that can gain scale in the country.
Stage 3 comprises the group of companies that are already abroad in two
to four countries –Brazil has 32 stage 3 companies in 2014. These companies
try to consolidate the operations in the countries they have chosen and increase
their margins with the operations abroad. The control of the operation, standardization and management make it appropriate for companies to allocate
one specific department, which will monitor the evolution and try to turn it
52
into something profitable. The concern with the brand and capital structure
becomes more urgent for companies that operate in four countries and that
have more units per country.
Stage 4 includes the group of 22 companies that have worked abroad since
the 1990s and operate in five or more countries. These companies need to grow
and establish a brand in the regional market. The challenges are to continue
growing to be able to establish global operations and take the brand to more
countries. This happened with American companies in the 1990s and 2000s.
When one looks at Starbucks, one notices not only the capacity of standardization of the business, but also the capacity of building the brand within the
global context and the culture of the countries at the global level.
Although there are many solid groups in Brazil, such as Gerdau, Votorantim
and Odebrecht, and widely consolidated brands, such as Havaianas, Brahma
and O Boticário, Brazil does not seem to be at a fast pace in the race for establishing valuable brands. In the Millward Brown publication that lists the rankings of the most valuable 100 global brands in 2014, the joint value of Brazilian
brands decreased 16% compared to the precedent figure. The total set is worth
over US$ 29 billion.
Meanwhile, in the same period, there was a 10% increase for Chinese brands,
which totaled nearly US$ 272 billion. That is, the most valuable Brazilian brands
account for a little over 10% of the value of the Chinese brands. It should be
noted that no Brazilian brand is valuable enough to rank among the 100 most
valuable companies both in the Millward Brown rankings and in the Interbrand
rankings. In addition to the Chinese brands, brands from other emerging countries, such as South Korea and Australia, also emerge (MBGLOBAL, 2014).
If the idea that companies are mainly comprised of brands and people is
correct, we need to act fast to change this scenario and ensure the competitive
edge of Brazilian companies. The franchise sector, with its potential to establish solid brands, plays a significant role now (INTERBRAND, 2014).
Finally, it is worth mentioning that the number of foreign franchises operating in Brazil increased from 130 to 206 in the last two years.
53
This represents a 58% increase within this period of time and, after analyzing the companies on the list for the number of countries where they work,
it is safe to say that many of them come to Brazil in Stage 4 – Committed
Involvement, because they already work in over five countries, with many
units in each country. As a result, competition in the domestic market tends to
increase. Therefore, it is necessary to have more Brazilian companies growing
abroad so that competition is maintained.
54
REFERENCES
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<http://www.abf.com.br>. Accessed on: September 3rd, 2014.
BRADLEY, F.; GANNON, M. Does the firm’s technology and marketing profile
affect foreign market entry? Journal of International Marketing, v. 8, n. 4,
p. 12-36, 2000.
BROOKES, M.; ALTINAY, L. Franchise partner selection: perspectives of
franchisors and franchisees. Journal of services Marketing, v. 25, p. 336–
348, 2011.
BUCKLEY, P.; CASSON, M. Analyzing foreign market entry strategies:
extending the internalization approach. Journal of International Business
Studies, v. 29, n. 3, 1998.
CASSANO, F. A. et al. Internacionalização de empresas brasileiras a partir de
1990. In: SEMINÁRIOS EM ADMINISTRAÇÃO – X SEMEAD, 2007, São Paulo.
Anais ... São Paulo: X SEMEAD, 2007.
CAVUSGIL, S. T.; NEVIN, J. R. A conceptualization of the initial involvement
in international marketing. In: C. W. LAMB; P. M. DUNNE (Org.). Theoretical
developments in marketing. Chicago: American Marketing Association,
1980, p. 68-71.
DOHERTY, A. M. Market and partner selection processes in international
retail franchising. Journal of Business Research, v. 62, p. 528-534, 2009.
FORTE, R.; CARVALHO, J. Internationalization through franchising: the Parfois
case study. International Journal of Retail & Distribution Management, v. 41,
p. 380-395, 2013.
GREWAL, D. et al. Franchise partnership and international expansion: a
conceptual framework and research propositions. Entrepreneurship Theory
and Practice, v. 35, p. 533-537, 2011.
INTERBRAND. Available: <http://www.interbrand.com/en/best-globalbrands/2013/>. Accessed on: August 26th, 2014.
JAMBULINGAM, T.; NEVIN, J. Influence of franchisee selection criteria on
outcomes desired by the franchisor. Journal of Business Venturing, v. 14,
p. 363-395, 1999.
55
JOHANSON, J.; VAHLNE, J. E. The internationalization process of the firm— a
model of knowledge development and increasing foreign market commitments.
Journal of International Business studies, v. 8, n. 2, p. 23-32, 1977.
KHAUAJA, D. Gestão de marcas na internacionalização das empresas.
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da Faculdade de Economia, Administração e Contabilidade, Universidade
de São Paulo, São Paulo.
LANCASTER, K. J. A new approach to consumer theory. The Journal of
Political Economy, v. 132-157, 1966.
MB GLOBAL. Available: <https://www.millwardbrown.com>. Accessed on:
August 26th, 2014.
MCINTYRE, F.; HUSZAGH, S. Internationalization of franchise systems. Journal
of International Marketing, v. 3, n. 4, p. 39-56, 1995.
MTIGWE, B. Theoretical milestone in international business: the journey to
international entrepreneurship theory. Journal of International Entrepreneurship,
v. 4, n. 1, p. 5-25, 2006.
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(Grupos de Pesquisa).
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das franquias brasileiras. V. 2. São Paulo, 2012. Available: <www.espm.br/
pmgdi> in Research Group. Portuguese and English versions.
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internationalization and performance of SMES. 2006. Thesis (Doctorate:
Management) - Cleveland State University, Cleveland.
56
APPENDIX A. QUESTIONNAIRE
Dear Franchiser, these questions have been created by ESPM
together with ABF for you to answer in just a few minutes.
They will help us map the Internationalization of Brazilian Franchises
and your responses will be used as a group only.
Franchise:��
Respondent:��
Respondent’s Position:��
PLEASE CHECK BELOW THE STAGE OF
INTERNATIONALIZATION OF YOUR COMPANY IN 2014:
Franchising in Brazil only (domestic)
( )
Experimental Involvement,
with only a few stores abroad
( )
Active Involvement,
recently growing abroad
( )
Committed Involvement;
Growing Abroad
( )
PLEASE CHECK THE SENTENCES BELOW ACCORDING TO YOUR LEVEL
OF AGREEMENT: 1 – I COMPLETELY DISAGREE; 5 – I COMPLETELY AGREE.
1) In relation to the company (franchise):
1 - completely
disagree
5 - completely
agree
a) It has products or services that
can be franchised abroad
1
2
3
4
5
b) There are plans to explore
the franchise abroad
1
2
3
4
5
c) There are plans to grow
the franchise abroad
1
2
3
4
5
d) It always looks for opportunities
in international franchising
1
2
3
4
5
57
2) As for international franchise:
1 - completely
disagree
5 - completely
agree
a) It is something desirable
for my company
1
2
3
4
5
b) It may contribute significantly
to the growth of my company
1
2
3
4
5
c) It may contribute significantly to
the profits of my company
1
2
3
4
5
d) It involves greater risks
than expanding in Brazil
1
2
3
4
5
e) It involves greater costs
than expanding in Brazil
1
2
3
4
5
f) It is less profitable than
expanding in Brazil
1
2
3
4
5
g) The profit from foreign
activities will fully meet
expectations in the future
1
2
3
4
5
h) There are too many initial costs
involved to get things started
1
2
3
4
5
i) Too much complicated to pay off
1
2
3
4
5
3) When selecting franchisees, considering the financial aspects:
1 - completely
disagree
5 - completely
agree
a) Prior to selecting the
franchisee, we make a thorough
real estate assessment
1
2
3
4
5
b) Prior to selecting the
franchisee, we make a thorough
credit assessment
1
2
3
4
5
c) We prefer franchisees to
use their own resources
1
2
3
4
5
d) We prefer franchisees to
use external financing sources
1
2
3
4
5
e) We have no preference in relation
to the origin of capital that will be
invested by the franchisee
1
2
3
4
5
58
4) When selecting franchisees, considering personal aspects:
1 - completely
disagree
5 - completely
agree
a) The franchise prefers
franchisees who are
business-oriented
1
2
3
4
5
b) The franchise prefers
franchisees with university degree
1
2
3
4
5
c) The franchise prefers
franchisees with initiative
1
2
3
4
5
d) The franchise prefers
franchisees with similar purposes
and goals as the franchise
1
2
3
4
5
e) The franchise prefers
franchisees with enthusiasm
and commitment
1
2
3
4
5
5) When selecting franchisees, considering managerial aspects:
1 - completely
disagree
5 - completely
agree
a) The franchise prefers franchisees
who used to work as free-lancers
1
2
3
4
5
b) The franchise prefers franchisees
with previous experience in a similar
business to that of the franchise
1
2
3
4
5
c) The franchise prefers franchisees
with another kind of business
besides the franchise
1
2
3
4
5
d) The franchise prefers franchisees
who will personally manage the
business on a daily basis
1
2
3
4
5
e) The franchise prefers
franchisees who had already
had management positions
1
2
3
4
5
59
6) When selecting franchisees, considering marketing aspects:
1 - completely
disagree
5 - completely
agree
a) The franchise prefers franchisees
that know the local market
1
2
3
4
5
b) The franchise prefers franchisees
with experience in public service
1
2
3
4
5
c) The franchise prefers franchisees with
experience in marketing management
1
2
3
4
5
d) The franchise prefers franchisees
with experience in sales
1
2
3
4
5
7) In the relationships with partners:
1 - completely
disagree
5 - completely
agree
a) There is flexibility when
changing agreements
1
2
3
4
5
b) Any information that can help
one party or the other will be provided
1
2
3
4
5
c) There is frequent, informal
information exchange, not only
as specified in the agreement
1
2
3
4
5
d) Problems are dealt with by the parties
as a set rather than individual matters
1
2
3
4
5
e) The parties involved are committed to
improvements that could benefit
the relationship as a whole and not
only the parties individually
1
2
3
4
5
What was the year of internationalization of your franchise? ��
or Not internationalized
( )
PLEASE CHECK BELOW THE ENTRY MODE CHOICE OF YOUR
FRANCHISE ABROAD
Master Franchise
Own Store
Local Franchise
( )
( )
( )
Thank you! To get to know the results of this study,
please write down your e-mail:��
60
ATTACHMENT A. BRAZILIAN FRANCHISES
ABROAD IN JUNE, 2014
Segment
Franchise Name
# of Countries
VIA UNO
18
CARMEN STEFFENS
14
DUMOND
13
IT BEACH
7
VICTOR HUGO
6
AREZZO
5
MAZ BRASIL
5
CHILLI BEANS
4
DEMOCRATA
4
CAPODARTE
3
MORANA
3
HAVAIANAS
2
JORGE BISCHOFF
2
DATELLI
1
LUZ DA LUA
1
MY SHOES
1
PINKBIJU
1
RAPHAELLA BOOZ
1
SANTA LOLLA
1
GRAND CRU
3
SPOLETO
3
BOB’S
2
To be Continued…
61
Attachment A. Continued
Segment
Franchise Name
# of Countries
GIRAFFA’S
2
L’ENTRECÔTE DE PARIS
2
MISTER SHEIK
2
AU AU LANCHES
1
BONAPOARTE
1
JET CHICKEN
1
JIN JIN
1
ROASTED POTATO
1
TEMAKERIA MAKIS PLACE
1
VIVENDA DO CAMARÃO
1
ZEBRA ZERO
1
Beverages, Coffee,
Pastries, Snacks
SHOWCOLATE
18
Beverages, Coffee,
Pastries, Snacks
FÁBRICA DI CHOCOLATE
10
Beverages, Coffee,
Pastries, Snacks
PASTELÂNDIA
3
Beverages, Coffee,
Pastries, Snacks
CAFÉ DO PONTO
1
Beverages, Coffee,
Pastries, Snacks
FREDISSIMO
1
Beverages, Coffee,
Pastries, Snacks
TOSTARE CAFÉ
1
Beauty, Health and
Natural Products
HOKEN
5
Beauty, Health and
Natural Products
EMAGRECENTRO
2
To be Continued…
62
Segment
Franchise Name
# of Countries
Beauty, Health and
Natural Products
TEAM NOGUEIRA
2
Beauty, Health and
Natural Products
ARMAZEN AMAZÔNICO
1
Beauty, Health and
Natural Products
CHAMMA DA AMAZÔNIA
1
Beauty, Health and
Natural Products
DEPYL ACTION
1
Beauty, Health and
Natural Products
EMAGRECENTRO FITNESS
1
Beauty, Health and
Natural Products
FIT 4 – FITNESS STORE
1
Beauty, Health and
Natural Products
MAGRASS
1
Beauty, Health and
Natural Products
MUNDO VERDE
1
Beauty, Health and
Natural Products
ORTHODENT
1
Beauty, Health and
Natural Products
PELO ZERO DEPILAÇÃO
1
Beauty, Health and
Natural Products
WERNER COIFFEUR
1
and Electronics
TOTVS
10
and Electronics
DATASUL
4
and Electronics
LINKWELL
3
and Electronics
LIGUE SITE
2
FRANQUIA IMÓVEIS
1
Building and
Real Estate Agencies
To be Continued…
63
Segment
Franchise Name
# of Countries
Cosmetics and Perfumery
O BOTICÁRIO
8
Cosmetics and Perfumery
TRUSS COSMETICS
5
Education and
Training Courses
SMARTZ SCHOOL
3
Education and
Training Courses
MICROCAMP
2
Education and
Training Courses
SUCESSO EM VENDAS
2
Education and
Training Courses
ANGLO-AMERICANO
FORMANDO
EMPREENDEDORES
1
Education and
Training Courses
CDI
1
Education and
Training Courses
SUPERA – GINÁSTICA PARA
O CÉREBRO
1
Entertainment,
Toys and Leisure
CASA COR
4
Entertainment,
Toys and Leisure
IGUI
4
Entertainment,
Toys and Leisure
FUNCLICK
1
Language Schools
CCAA
11
Language Schools
WIZARD IDIOMAS
11
Language Schools
ESCOLAS FISK
6
Language Schools
WISE UP
5
Language Schools
ABC – AMERICAN BRAZILIAN
CENTER
2
Language Schools
MULTI IDIOMAS
1
Language Schools
NUMBER ONE IDIOMAS
1
To be Continued…
64
Segment
Franchise Name
# of Countries
COMBATE
2
ASTRAL
1
Bookstores &
Office/School Supplies
LIVRARIA E PAPELARIA
NOBEL
4
Bookstores &
Office/School Supplies
AMBIENTAL EXPRESSÕES
SOCIAIS
1
Home Decor & Furniture
GATOS DE RUA
2
Home Decor & Furniture
FIRST CLASS
1
Business, Services,
Convenience
CARTAXI
1
Business, Services,
Convenience
CARTÓRIO MAIS
1
Business, Services,
Convenience
CARTÓRIO POSTAL
1
Business, Services,
Convenience
GELRE
1
Automobile Services
LOCALIZA RENT A CAR
8
Automobile Services
CHIPBRAS
1
Clothing
CANTÃO
9
Clothing
COLCCI
9
Clothing
LILICA & TIGOR
8
Clothing
HERING STORE
5
Clothing
LUPO
4
Clothing
MORMAII
4
Clothing
BRASIL SUL
3
Clothing
HOPE LINGERIE
3
Clothing
M. OFFICER
2
To be Continued…
65
Segment
Franchise Name
# of Countries
Clothing
DARLING
1
Clothing
GREEN BY MISSAKO
1
Clothing
KONYK
1
Clothing
MISSBELLA
1
Clothing
PUC
1
Clothing
PUKET
1
Clothing
RICHARDS
1
Clothing
TRACK&FIELD
1
Clothing
TVZ
1
66

stages of internationalization of brazilian franchises

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