Best in Class International Franchise Model: Optimizing Performance for UK retailers

Lead Research Organisation: University of Leeds
Department Name: Leeds University Business School (LUBS)

Abstract

The proposed knowledge exchange programme, in partnership with a leading UK retailer, addresses a core business problem relating to the internationalisation of retailing. High street retailers face increasing global competition both in the UK and in international markets. Sustainable international growth is imperative for UK retailers to retain their competitive position and this has significant implications for the UK economy. In the past, the record of UK retail internationalisation has been mixed.

This project will help UK firms optimize their international strategy and hence support the overall UK economy. The applied research focuses on international franchising which is an area where there is a significant gap in both business and academic knowledge. The work will benefit the user community (the partner and UK retailers generally) and will contribute to the development of new theory on internationalisation.

The economic downturn in the UK has seen a renewed focus on internationalisation by UK retailers. Yet internationalisation is the sector is difficult - differences in consumers around the world usually mean the retail offer has to be adapted; the retail brand has to "work harder"; emerging markets (where the greatest new opportunities are) are generally more culturally different and inherently riskier. Retailers also need to have a multi-channel strategy and provide an integrated shopping experience across channels.

Franchising is often central to retailers internationalisation strategy as it enables them to expand quickly, keeping pace with shopping mall development, provides a certain amount of local market knowledge and expertise, with a minimal amount of risk. However, retailers also want their partners in other countries to help build their brand and the extent to which they are prepared to do this is influenced by the franchise model. The aim of this research is to help the user group optimize their franchising model especially as it relates to emerging markets, specifically Russia, Ukraine, Turkey and certain areas of the Middle East. Performance comparisons will be made between franchising and other modes of international operation (wholly owned and joint venture operations).

The proposed research will also benefit the academic community. Franchising can be seen as a "Cinderella" topic in international marketing and international business research, compared with the allied topics of joint ventures and strategic alliances. What literature there is in existence is predominantly USA-centric, heavily focused on franchising in the domestic market and heavily focused on restaurant and hotel franchises. The academic literature has failed to keep up with the fact that franchising is increasing in its usage by businesses and especially by retailers. While there is some recognition in the literature that franchising is a valuable means to develop a business abroad (e.g. Watson et al, 2004), what studies there are tend to treat franchising as a uniform practice and fail to take account of the specific franchise terms that can result in vastly different franchising models and hence different outcomes for the franchisor.

The methodology for the applied research to be undertaken during the knowledge exchange programme uses mixed methodologies: content analysis, qualitative interviews and quantitative data analysis. The study will combine data from a range of sources including interview and survey data from partners in the emerging markets and existing company data. The work is to be managed under an existing confidentiality agreement.

Planned Impact

This project will make an important contribution to knowledge by demonstrating how academic research in business schools can have high scholarly research impact, and be of value to business. Beneficiaries include: our partner company, its franchisees, suppliers and employees; other UK retailers, their suppliers and industry bodies; global retailing; and the academy. The project will contribute in three areas:

International Retailing
The UK economy is heavily reliant on services (including retailing) and the sector is important for UK international competitiveness. Building a global retail brand is challenging - the retail offer requires at least some adaptation for different markets/cultures. Also, modern retailing must be multi-channel - performance is linked to transparency between virtual and the physical store options across borders. Developing the optimum mix of channels and locations raises success in highly competitive global retailing. The research will contribute to knowledge of how best to deploy growth strategies (i.e., franchising) in multi-country retailing in order to build a successful global brand.

Understanding Emerging Markets
In the current economic climate, the focus of retail expansion has shifted from the Eurozone and North America to more distant emerging economics. These markets are inherently riskier and vastly different in terms of culture and business practices. However, many have demonstrated phenomenal growth in recent years and the business opportunities are well recognised. The research will contribute understanding on how best to approach these markets and in particular how to gain first mover advantage and maintain a rapid rate of expansion without exposure to a high level of risk.

Franchising
The extent to which franchisees (or joint venture partners) in overseas markets are prepared to invest in and build the brand is a serious issue for retailers. Franchising is often central to international retail expansion as it allows for brand building with minimal cost/risk. But franchises can take many forms and the particular model used influences the actions of the franchisee. The research will show how franchising can be optimized to achieve the desired strategic objectives of the franchisor. Going further, comparisons will be made between different foreign market entry modes and their effects on performance.

Academic Impact and Relevance
A problem for quantitative academic research is that the only readily available numerical data are highly aggregated, and do not capture business problems. Qualitative research has the task of making sense of processes within firms. This project will be an exemplar of methodological synergy. Qualitative insights will underpin not only survey data, but also the use of objective data. Commercial firms commonly under-exploit their own data but this can provide a wealth of knowledge that can be utilised by academic researchers. The lessons learned, methods and the findings of this research will be communicated through academic articles in world leading international journals in the area of international management, business and marketing. The PI and Co-I are frequent international conference presenters and will disseminate the findings at relevant conferences. The research is planned to have particular impact on new researchers, starting with the post doctoral research assistant under this project; as part of the capacity building stimulated by the research. The project will re-theorise and re-estimate franchising within the canon of international business modes, so addressing the unwarrantedly low academic attention customarily given to the mode. The research will contribute to academic understanding and knowledge of the role of franchising in international retail businesses, which is particularly important for understanding service sector internationalisation.

Publications

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Description The study has discovered the following in line with the study objectives:

The optimal model of international franchising is heavily reliant on interdependent partnerships. Unlike traditional franchising partnerships, where the franchisor is in control and intensively monitors across its network of franchisees, international franchising is best developed through using a capable overseas area development partner. The differences between emerging markets and the UK can be so extreme that it is difficult for the franchisor to control operations, irrespective of their resource base and experience. In effect, the franchisor is reliant on the franchisee to make and implement decisions in the local marketplace and absorb local risks. The overseas franchisees can effectively build the brand with the franchisor in a form of strategic alliance-both sides learn to cooperate over time to this end. Our findings contribute to the first stage of international area development franchising relationship theory development, but also contribute new insights to theory on strategic alliances.

Key to the performance of overseas franchising is the role of the overseas franchisees in interpreting local market conditions and enabling the franchisor to respond to these. For instance, in emerging market settings the consumer can be more aspirational than in the UK and represent a younger demographic profile. The ability to localize marketing (e.g., products and prices), however, can be undermined not only by the franchising model applied (e.g., levels of franchisor control and operational support), but also by the design of the UK retailer's business. More specifically, the franchisees we studied were especially critical of logistics and supply chain and buying and merchandising arrangements, which undermine franchisee responsiveness to local market conditions. These areas of the retail business can put domestic retailing first, which adds to the difficulty of resolving the issues.

The franchising model is not as profitable vis-à-vis other modes of foreign market entry. However, it is optimal in its ability to accommodate head-winds in risky overseas markets. Marks and Spencer use franchising to remain profitable in Russia and the Ukraine, despite the socio-political tensions in these territories over the past twelve months. The risk of lost sales due to recession is also borne by the franchisee; though Marks and Spencer will take returns of bought and paid for goods under such exceptional circumstances. Where the franchising model has an issue is in internet related expansion, which is far easier if the UK retailer is using a form of ownership overseas (e.g., a joint venture). For instance, Greek Marks and Spencer customers can shop through the internet, whilst this option is not feasible for Cypriots. In sum, the performance of different modes of foreign market entry is highly circumstantial. Franchising should though be playing an important role in overseas retailing operations due to its flexibility and ability to absorb head-winds. UK retailers can derive advantages from using a network of franchising operations (e.g., in emerging markets) as the basis upon which to expand into other, higher-profit modes as and when local circumstances dictate this.

(Please follow the URL below for highlights of our study's implications for large and small retailers and a click through to the comprehensive Best In Class International Franchising Report itself).
Exploitation Route The study has produced insights in separate areas: international retailing, franchising strategy, strategic alliances, foreign market entry modes, and emerging markets. The findings can be taken forward by scholars and practitioners interested in any of these areas. This said, it is expected the findings will be of most value to those seeking to investigate research questions and/or develop retail policy across the areas.

Although dissemination is an on-going activity and involves a number of firms, Marks and Spencer have already fed back on the quality of our findings in various meetings and telephone discussions, and they have begun to implement changes to their franchising model based on some of our findings (e.g., they are changing their pricing model to better localise this aspect of their international marketing).

The most recent dissemination event - the Ideas of Practice Seminar - co-delivered with Marks and Spencer in January 2016, involved Duncan Tennent, their Regional General Merchandise Sales Manager for the Middle East and North Africa. Indeed, the purpose of this event was to open up the findings to other major retailers (e.g., Boots), and to third parties (e.g., law firms such as Eversheds) using the findings in their consultations on international retailing models.

The project team has widely disseminated the findings to different academic and practitioner conference audiences, to interested parties using social media and blogs, and using the Business Press. Our recent success in receiving the Leeds University Business School Research Impact Award will spur further dissemination and engagement activities.
Sectors Retail

URL http://business.leeds.ac.uk/research-and-innovation/blog/article/best-in-class-international-franchising-report-for-the-uk-retail-sector/
 
Description Activities of the research team to disseminate key findings and achieve impact are on-going. Thus far, they include the following: • Members of the research team presented the study findings on two separate occasions to a total of six senior managers at the corporate HQ of the Retailer. The Retailer has also been handed several written reports. Further, the findings have been discussed with one senior executive of a global consultancy the Retailer is using to inform its international expansion. Our findings have fed into the work of this consultancy and driven change at the Retailer. • The PI co-presented study findings alongside a senior regional manager of the Retailer at a high-profile seminar series run jointly by the University of Leeds and the Retailer. This Leeds-based seminar involved presenting to a mixed audience of over 100 managers, students, and alumni. • The PI sat on an expert panel at the Eversheds Annual Retail Conference, in London, for their International Expansion Planning Workshop. The workshop covered current trends and challenges facing retailers, including international franchising-drawing on the findings of the study. This conference involved just over 100 delegates spanning the vast majority of large retailers operating on the UK high street. • Members of the research team presented papers based on the study findings at five major conferences: the European Marketing Academy Conference; European Association in Education and Research in Commercial Distribution Conference; International Society of Franchising Conference; Colloquium on European Research in Retailing Conference; and British Business Group India Conference. Not only do these conferences span different subject foci (e.g., marketing, retailing, franchising, and international business), but also they vary in their audience make-up (e.g., academics and/or practitioners). • Members of the research team presented the study findings at an internal Impact and Engagement Seminar Series that is organised through Leeds University Business Schools' Connections team and Professional Services Hub. This seminar will be repeated to an external audience, consisting of retail practitioners. The Retailer and Eversheds have committed senior staff to supporting this event, which is to take place in London. • The PI disseminated findings of the study in research-led teaching to in excess of 300 students at the postgraduate and undergraduate levels. This led to the development of an undergraduate student's summer project focusing on the Retailer's franchising model and involving new interviews with their staff (facilitated by the PI). • A paper was submitted to the Chartered Management Institute Top Management Articles of the Year Competition. Scholarly articles targeting top management journals are in the process of being developed. • A detailed industry report that furnishes UK retailers with insights into how to set up and manage franchising partnerships with overseas retailers has been made available online (e.g., http://business.leeds.ac.uk/research-and-innovation/blog/article/best-in-class-international-franchising-report-for-the-uk-retail-sector/). The launch of the report, which was signposted in an article in the Yorkshire Post, has led to discussions between the PI and a number of retailers, legal firms, and consultancies. Indeed, we have observed that the use of well-connected intermediaries is an efficacious route to senior managers of internationally expanding retailers.
First Year Of Impact 2014
Sector Retail
Impact Types Economic

 
Title Emerging market franchising data 
Description The database for the study comprises rich qualitative data from over 60 interviews across five countries (so far). Trips to two more overseas countries are being scheduled. Survey data is being collected this Autumn, alongside objective store-level performance data. In sum, the data collected will be most comprehensive and scrutinise many aspects of international franchising relationships in emerging markets. 
Type Of Material Database/Collection of data 
Provided To Others? No  
Impact There has not yet been direct impact from the data themselves, though the data have generated considerable interest at the conferences and dissemination events we have attended thus far. The general sense is that the present data is broader, deeper and more analytical than data used in previous international franchising research. 
 
Description British Business Group Conference - Connect 2014 (Delhi, India) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact The BBG annual conference is an industry-focused conference that aims to consolidate relationships between British and Indian organisations across industries. Two industries heavily focused on at the conference are education and retailing. Indeed, the conference is sponsored by the current project's retail partner, Marks and Spencer. The present study is relevant to this event given its focus on building retailing partnerships in emerging markets. I delivered a keynote on the partnership between Marks and Spencer and our School and the evolution of the focal research study, which fed into a subsequent panel question and answer session in which I also took part.

After my talk, there have been email exchanges and telephone conversations with practitioners from a range of organisations concerning taking the present research forward into the Indian context. Note that India was not one of the countries included in the present study. However, Indian retailers are very interested in accumulating retailing knowledge given the poorly developed status of organised retailing in their economy.
Year(s) Of Engagement Activity 2014
URL http://www.britainindiaconvention.com/
 
Description Colloquium on European Research in Retailing 2014 (Bremen, Germany) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other academic audiences (collaborators, peers etc.)
Results and Impact This presentation of the study's results at the CERR was to a mixed audience of retailing focused academics and practitioners. The CERR is a grouping that aims to provide managerial and scientific insights. It specialises in highly applied research and presentations are delivered by both academics and retail practitioners. The talk stimulated thinking on reasons for the perceived lack of international research on franchising despite its attractiveness to retailers as a low risk model for expanding overseas. The theme of the colloquium was retailing in post-crisis Europe and there was recognition that many attractive retailing opportunities are away from Europe.

The talk led to email and telephone exchanges with peers concerning the need to identify non-English research on international franchising and to pursue cross-border retailing research generally. Such research could involve the present project's retail partner, Marks and Spencer.
Year(s) Of Engagement Activity 2014
URL http://cerr.sciencesconf.org/
 
Description Dissemination of interim findings (Marks and Spencer headquarters, London) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact We formally presented the initial findings from the qualitative phase of the study and discussed the first interim report to Marks and Spencer's international business decision-makers (specifically, Steven Finlan, Director of International Operations, and his team), in July 2014. Please note that the second interim report is to be presented to Marks and Spencer in November, again at their headquarters. Our presentation and interim report stimulated debate into the findings.

One notable impact is that the Marks and Spencer managers were surprised by some of the findings, requesting more detail during the discussion. Moreover, they requested three additional mini-reports focused on particular issues raised in the qualitative findings or literature review, which we duly provided.
Year(s) Of Engagement Activity 2014
 
Description Eversheds Annual Retail Conference 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact The PI sat on an expert panel at the Eversheds Annual Retail Conference for the purposes of an: International Expansion Planning Workshop. This workshop covered current trends and challenges facing retailers, and Professor Robson covered international franchising drawing on the findings of the study. This conference, headed up by James Batham (Partner, Eversheds International), involved just over 100 delegates spanning the vast majority of UK retailers. Among these there were many retailer managers and lawyers focusing on international issues.

This workshop involved an opening talk by each of the panel members followed by a question and answer session. Questions from the audience on features of international franchising led to subsequent discussions at the conference, and since the conference, on how to take the study findings forward with particular organisations.
Year(s) Of Engagement Activity 2015
URL http://www.eversheds.com/global/en/what/training/showevent.page?Events=en/Annual_Retail_Conference_2...
 
Description Further academic conference presentations 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Public/other audiences
Results and Impact The findings of the study were presented at the European Marketing Academy Conference (May 2015), International Society of Franchising (June 2015) and European Association in Education and Research in Commercial Distribution (July 2015). These three conferences were selected with the view to disseminating the findings widely among different bodies of academics. Please note that the International Society of Franchising, in particular, is a conference that also involves many practitioners. The presentation talks sparked questions and discussion of the findings and their value to retailers and other firms.

The talk led to email and telephone exchanges with peers concerning projects that can take forward the findings of our franchising study. Such research could involve the present project's retail partner, Marks and Spencer.
Year(s) Of Engagement Activity 2015
 
Description Further dissemination of findings (Marks and Spencer headquarters, London) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Building upon the earlier presentation of interim findings, a more detailed report of the study findings was presented and discussed. Steven Finlan, the former Director of International Operations, left M&S in November 2014. His replacement, Mark Koprowski (Regional Director) and his team, requested a presentation in August, 2015, that covered previous updates and results but also new findings. The role of this discussion was also to inform an allied consultancy project conducted by Javelin on how to improve the M&S franchising model. Essentially Javelin were instructed to pick up on our key findings in order to help make changes to the M&S franchising model. To this end, there was a subsequent telephone meeting with Alice Cowley (Associate Director, Javelin) on how to take forward some of the study findings.

The August meeting at M&S headquarters fed into work by Javelin to implement certain of our study findings and, thus, had a direct impact on the M&S franchising model.
Year(s) Of Engagement Activity 2015
 
Description Ideas in Practice Seminar Series (London) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact The project team launched the Final Project Report at a London-based dissemination event at the inaugural session of the Business School's Ideas in Practice Seminar Series. This event was held at 11 Cavendish Square, London, and involved an audience of around 30 practitioners and academics. The first part of the event was a presentation of the franchising work conducted by the Leeds team. This was followed by a panel discussion, involving Duncan Tennent, Regional General Merchandise Sales Manager (MENA), Marks & Spencer plc, Susan Samuel, International Franchise lawyer, Eversheds LLP, and Fred Bassnett, Senior International Trade Advisor, UKTI.
Year(s) Of Engagement Activity 2016
URL http://business.leeds.ac.uk/research-and-innovation/blog/article/upcoming-seminar-international-stra...
 
Description Impact and Engagement Seminar Series (University of Leeds) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Leeds University Business School runs an internal Impact and Engagement Seminar Series, that is organised jointly by LUBS Connections and our Professional Services Hub (these bodies are tasked with building corporate partnerships). The purpose of the series is to stimulate debate and spread best practice on impactful modes of research. Our presentation of the franchising study results sparked a lively debate around the potential for and importance of pursuing research projects through partnerships with firms as a means of accessing data and impacting decisions.

One immediate outcome of the presentation is that this seminar will be repeated to an external audience, consisting of academics from other disciplines as well as practitioners, sometime in the new year. Our Professional Services hub is to arrange this. A second outcome concerns conversations about future research involving other academics from LUBS and potentially with the focal partner, Marks and Spencer.
Year(s) Of Engagement Activity 2014
 
Description Presentation of the Study Findings to Executives of Boots Plc. 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Industry/Business
Results and Impact This two-hour presentation was part of an executive training programme on international retailing organised by Nelson Blackley at Nottingham Business School. The exec. programme was developed for Boots Plc. - managers in different business functions based at Boots' headquarters in Nottingham. The discussion focused on how franchising across borders draws upon expertise across different areas of management. For instance, Boots supply chain managers present suggested that their own cross-border franchising operations face logistical issues, in line with those that I presented. Learning lessons from the current study were viewed as appropriate to the recent experiences of Boots.
Year(s) Of Engagement Activity 2017
 
Description Research-led teaching at University of Leeds 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Postgraduate students
Results and Impact The main findings of the research were disseminated during teaching at the University of Leeds. specifically, the findings were fed into the lecture content for Contemporary Business Issues (an undergraduate module on our BSc Management programmes), Marketing for Management (a postgraduate module on our MSc Management programmes) and International Services Marketing (a postgraduate module on our MSc International Marketing Management programme).

As well as raising insight into international franchising, these talks stimulated at least one of the students (Ross Baxter, an undergraduate student) to conduct a summer dissertation on the brand effects of M&S international franchising. This dissertation involved Gobind Bansal from M&S' side, as well as the M&S archive, which is situated at University of Leeds.
Year(s) Of Engagement Activity 2015
 
Description The On Your Marks Seminar Series 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact This seminar was jointly delivered with Gobind Bansal, who at the time was the regional manager for Marks and Spencer's Baltics area. The topic of the seminar was From Leeds to Limassol: Innovations in International Business Models. The first part of the seminar was delivered by the PI, with Gobind taking over in the second half. The PI concentrated on franchising, while Gobind spoke more generally about internationalisation and use of e-commerce to that end. The final part of the seminar involved a question and answer session that addressed points the audience found particularly interesting.

After this talk I was approached by a number of practitioners who were interested in seeing more of my findings. We made arrangements to this end. Further, these discussions led to a connection with Eversheds, which is a law firm that specialises in helping retailers go international. The connection to Eversheds proved hugely important in terms of boosting the reach of the research--it led to the PI's involvement in their Annual Retail Conference.
Year(s) Of Engagement Activity 2014
URL https://www.leeds.ac.uk/info/3000/working_with_business/186/strategic_partnerships/5
 
Description Workshop participant at the Dentons International Franchising Masterclass Series 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Dentons are a law firm with unrivalled expertise in international franchising. They run regular workshops picking up on key aspects of international franchising. I was invited and attended two workshops on the basis of my expertise in international franchising and the work undertaken on the best in class project. Both workshops were attended by around 25 practitioners, mostly from the retailing field but also from hospitality/tourism businesses (e.g., hotel and car hire firms). Also, further participation at the workshop has been requested. The workshop has proven a very good forum for disseminating knowledge as it is attended mostly by users of expert knowledge (i.e., practitioners interested in the franchising model). Connections made during the round-table discussion at the workshop have led to conversations about taking the research forward with other firms.
Year(s) Of Engagement Activity 2016,2017