Why might a company choose to use franchising as a global business strategy?

Franchising as a global business strategy allows a company to leverage local knowledge and investment, which is critical when entering diverse international markets. By partnering with local franchisees, a company can benefit from their understanding of regional consumer behavior, cultural preferences, and market dynamics. Local franchisees typically have established networks and relationships, enabling quicker and more effective market penetration.

Additionally, since franchisees are responsible for the majority of the investment in setting up and managing the franchise, this arrangement significantly reduces the financial risk for the parent company. Rather than having to invest heavily in foreign markets directly, franchising enables the parent company to grow its brand presence with much lower operational costs and risks, essentially operating as a brand steward rather than a direct market operator.

The other potential reasons for considering franchising, such as reducing marketing costs or limiting market presence, do not align with the fundamental advantages offered by the franchising model. Franchising is typically used to expand market presence rather than limit it, and while marketing can benefit from local franchisees’ strategies, the primary rationale remains the utilization of local expertise and investment. Managing all operations centrally contradicts the essence of franchising, where operational independence is a key component of the franchise relationship.