Managing Franchise Organizational Data

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IMPLICATIONS FOR GLOBAL E-COMMERCE USING FRANCHISING AS THE GROWTH STRATEGY

As was mentioned in the INTRODUCTION section, there is a growing trend of using franchising as the growth strategy in the global e-commerce market. Consider Eastman Kodak as another example. Kodak knows quite well the importance of the Chinese market as can be seen from the quote of its Chairman George Fisher (Alon, 2001): “To be the leader in the world, you have to be the leader in China.” Although Kodak has no franchise outlets in its home country U.S.A., Kodak realizes franchising is a very effective solution to deal with the so-called “three mountains” major obstacles of e-commerce in China (Chen, 2000): (1) online payment; (2) certificate authority; and (3) product distribution. Kodak’s e-commerce/franchising strategy in China can be seen from the Chinese-style Kodak China Web site (www.kodak.com.cn) and the successful Kodak Express franchise outlets (Alon, 2001): “Revenues of China’s operation in 1999 grew 36% while profits mushroomed 58%, which compares favorably with Kodak’s global growth of 5% and 13%, respectively. Kodak is the best selling film in China, with a 40% market share. Kodak Express with 5,500 outlets in 500 cities is the largest retail chain in China… Kodak signs up entrepreneurs at the rate of three per day and is planning to grow its franchising system to 8,000 outlets by 2001 (Swift, 1999).” Another very important reason for the success of Kodak in China is its ability to help solve the unemployment problem, a burning issue in China, through the joint franchise loan program with the Industrial and Commercial Bank of China's Shanghai branch (China Online, 2000) and Bank of China (China Online, 2002). Through the help of the loan, Chinese entrepreneurs, including unemployed workers, will be able to start up with their own Kodak Express franchises. In addition, the franchise loan program also helps curb the fear of “Westernization” and competition from developed countries (Zeidman, 1999), which is reported to be a major concern after the accession of World Trade Organization (WTO).

Using China as an example, we can see that a sound growth strategy for multinational companies to do e-commerce in developing countries is to have a Host-Country-Language Web present globally and franchisee/company brick-and-mortar outlets present locally. When the franchiser starts international franchising, many barriers demand the changes and adaptations of the franchise system (Sherman, 1999), including language, culture, laws, marketing, and employment. Among many ways of international franchising, establishing a master franchisee is the most frequently used approach (Justis and Judd, 2002). The master franchisee, assuming the role of the franchiser, will work closely with the franchiser to develop the following areas in the host country (Thomas and Seid, 2000): franchisee recruiting, site selection, marketing, training, standards enforcement, and office management. Once the franchise system in the host country is up and running, it is usually up to the master franchisee to deal with the issues related to data, information, and knowledge development and leveraging. As the master franchisee will be busy on expanding the franchise system in the local market, those important issues are usually dealt with loosely.

As the franchise system continues growing in the host country, more and more franchisees will be in the Rebel Phase of the franchisee life cycle shown in Table 1; and the same challenging question as in the home country will occur again and again: “I have learned all you have taught me, why should I continue paying you the royalty fee?” If the master franchisee doesn’t deal carefully with the franchiser on this foreseeing challenge wisely, the whole franchise chain may disappear totally from the host country (Thomas and Seid, 2000). Bud Hadfield, the founder of Kwik Kopy franchise and the International Center of Entrepreneurial Development (www.iced.net), said it the best (Hadfield, 1995): “Obviously, one of the satisfactions of expanding overseas is the fact that you can now be sued in different languages.” Thus, a formal, rigorous, and timely approach to transforming the working knowledge profiles repository, such as the one shown in Table 4, from the home country to the host country is not just a strategy for the franchise to grow and expand, it also is a necessity for the franchise system to survive! One way to achieve this efficient and effective transformation of working knowledge is, once again, letting the local ASP (or the ASP in the host country) to handle the data (Table 1) and information (Figure 1) applications, so that the master franchisee will be able to put his/her focus on building and perfecting the adapted Intranet-based Working Knowledge Repository in the host country.

Traditionally, franchising has been used as an effective strategy to transfer technology and emerging markets from developed into developing countries (Stanworth, Price, and Purdy, 2001; Welsh and Alon, 2001; Paswan, Young, and Kantamneni, 2001). This growth strategy is gaining its popularity due to the need for combining the online present and offline services (Porter, 2001) in the e-commerce centered global economy. The implications of the study in this paper for companies using franchising as an e-commerce growth strategy in the global market can be summarized as follows:

Focus on the franchiser and the franchisee relationship management. Nourish the franchisees so that they can be transformed into a “Professional” in the franchisee growth life cycle. Through the collaborative work of the “Professional” franchiser and franchisees can the system continue creating high-business-value asset leveraging.
Manage carefully the Intranet-based Working Knowledge Repository in-house. Outsource the data and information applications to trust-worthy ASP. Also, make sure that the ASP are flexible enough to align their services to provide value-added inputs to the Working Knowledge Repository.
Train the master franchisees to do the two bulleted points above well, as they are the keys for the franchise system to survive and thrive in the international franchising arena.