York Fries is known for its high quality fries made with real and hand-cut potatoes and fried in a non-hydrogenated, trans fat-free, sunflower oil. Jay Gould, president of The Company and founder is holding a biannual meeting with its franchisees in the next three days. He is planning to discuss about the plan to have international expansion into another countries, such as China, India, and South Korea.
However there are many risks and costs to consider, as there have been a number of failures In International expansion at South Korea and Australia. NEFF operate mainly from franchise. Franchise owners bought the rights to operate NEFF in different locations. NEFF will then get upfront fee and monthly royalty, NEFF also encourages franchisees to open more stores by giving refunds for the next five stores opened. Currently there are more than 190 NEFF stores in six countries, Canada, Hong Kong, Macaw, united Arab Emirates, and South Korea, with sales in excess of $64 million (Pradesh, 2011).
This paper will analyze about the reason why South Korea and Australia market failed; lack of funding, poor business skills, and unable to follow he standard, and furthermore I will touch briefly on the motivation for franchising and what NEFF need to do before entering new market in India and China. There are three main reasons why Australia and South Korea failed to meet NEFF expectation, which are, lack of funding, poor business skills, and unable to follow company’s standard. One of the biggest mistakes Is when Gould underestimates the Importance of fund.
Often time people make mistake Into thinking that having enough money to buy the right to franchise is enough, when in reality it is not. The season being slow starting growth, competitors and unexpected event might easily drain the costs of franchising. Furthermore, the Australian franchisee did not have enough funds to open at a strategic location where market is easily available. This cause consumer to prefer other fast food competitor at a convenient and strategic place. Secondly, poor business skill can cause major problem.
Often people prefer franchisee because It Is a proven system with all the training and support from the headquarters. However, franchisees have to keep in mind that franchising is one of he types of business. Thus, like every other business, it requires the managers to have a good people skill, marketing, strategic plans, and also experiences. Without theses any business will fail. South Korea franchisee lack these qualities and resulting In a poor growth. In addition to It, South Korea franchisee also need a lot of support and time from the head quarters which often will be costly for the headquarter.
In the end NEFF business involve people: if the manager does not manage its employees properly, employee will be denominated which will lead to high turnover ratio. In addition to it although NEFF has its brand equity, managers need to actively come up with strategic plans to improve their standing in the local market as well. Third, unable to follow the standard of the parent company is the worst outcome of franchising. By franchising, franchisee receive brand equity of NEFF, thus branch. However, if the franchisee does not follow the standard, quality served will be different and resulting in customer’s dissatisfaction.
Worst, this might affect the company’s image in general. Both Australian franchisee and the first South Korean ranches lack this quality as well. Franchising is a good way of Internationalization for NEE. Company becomes international in scope for many reasons: continued growth, domestic market saturation, potential foreign market, and many more. Franchising is a good way of internationalization because it can act as additional source of income, lessen risk compare to opening a wholly-owned branch in another country, smaller central organization, and maintaining a more cost effective labor.
Although there are few disadvantages as well such as cost for training and support of the franchisees, risk of avian their company’s image being broken by the misfit of their franchisees, franchisers has to disclose confidential information which will be risky if franchisees decide to open a new company, and pressure from franchisees to change certain policies. However, looking at the success of NEFF franchising, I think that the benefits of franchising actually outweigh the disadvantages of franchising. However, there are certain things to be considered before NEFF decide to expand their business in India and China.
A few considerations that worth noting are inducting market research and finding the right franchisee with good business skills. Market research include finding the right target market, income distribution, and its culture. For example China and India are a strong cultures countries, so there is high possibility that NEFF might not attract many consumer if localization is not done. Furthermore, the case also stated that there are many western quick-service restaurants that had a hard time in adjusting their menu to regional taste preferences across China.
So, I don’t think NEFF will attract many customers without hanging its menu to meet the criteria of Chinese population. For India, western quick-service restaurants are relatively new to Indian customer so there is probability that local market will not consume the product directly, plus Indian does not consume beef. However, it all comes down to whether or not NEFF will take the risk and the above problems may also be solve if NEFF is able to find franchisees with good management skills to avoid failure like in Australia and South Korea. In conclusion, NEFF has becoming more stable in its franchising business.