Marketing strategies in the internationalization process of Brazilian franchises.

AutorCamargo, Maria Adriana A.P.
CargoTexto en ingles - Ensayo

1 Introduction

In Brazil, revenues from the franchise sector in 2015 were approximately BRL 139 billion, which is an increase of approximately 13% compared to 2014. In the global context, Brazil ranks 6th relative the number of franchises, with 114,409 units in 60 countries, mainly in the US and Portugal (Guide Franchising, 2016).

According to a guide for franchising (Associacao Brasileira de Franquias [ABF], 2016, p. 8) from ABF (Brazilian Franchising Association), "Brazil already has 134 franchises in operation abroad in 2015; this number is 20% higher than in 2014". These overseas operations are still minor compared to the Brazilian market, but they represent an appealing challenge for managers regarding concerns about profitability and growth. According to ABF (2016), only 5% of Brazilian franchises pursue internationalization, and many others prefer to target local expansion before deciding to internationalize.

According to Melo, Andreassi and Oliveira (2012), Brazilian franchises use different entry modes in international markets, such as owned units, direct franchises, master franchises or join ventures, and the choice of a particular entry is linked to the levels of control, international strategies and investment abroad.

The choice of this strategy is also based on: (1) the time required for recovery of investment; (2) the level of control desired in foreign operations; (3) the scaling of resources available for international expansion; and (4) the flexibility that will be given to local partners (Sanghavi, 2003).

In addition to the choice of strategy, it is also necessary for Brazilian franchises to decide on the marketing strategy to be used in the internationalization process.

When a company operates in foreign markets, marketing activities have a strong influence on the creation of competitive advantages and implementation of the strategy of the company.

In this context, this paper analyzes the internationalization process of Brazilian franchises, with an emphasis on these firms' marketing strategies. The aim is to identify the marketing strategies used by Brazilian franchises in two stages of the internationalization process: active involvement and commitment involvement.

McIntyre and Huszagh (1995) developed a stages model using Uppsala Model to describe the stages of internationalization of franchising companies in the US and created four stages: domestic, experimental, active, and committed to internationalization. Rocha et al. (2014) used these stages to analyze Brazilian franchises and divided 106 franchises with operation abroad into three clusters: 51 companies with experimental involvement in only one or two countries abroad; 32 companies with active involvement in three or four countries abroad; and 22 companies with committed involvement in more than five countries abroad.

One research gap has been the identification of an emerging market context, such as in Brazil, which has been a late mover in international franchising, with regard to how companies use marketing strategies in different stages of the internationalization process.

According to Zou and Cavusgil (2002), the GMS of a company abroad has positive effects on their performance in the global market. This strategy was defined by Zou and Cavusgil (2002) as a measure that a company uses to globalize its products and its marketing in the countries in which it operates. This process is accomplished by means of marketing mix standardization, concentration and coordination of marketing activities and integration of competitor actions in the markets in which the company undertakes business. Rocha and Silva (2011) analyzed the GMS in subsidiaries of multinationals in Brazil.

In this paper, we use a qualitative method to develop three case studies. All of the companies are from the footwear and apparel sector in Brazil: two with active involvement abroad and one with committed involvement. We conducted six in-depth interviews with executives to investigate this subject. This papers starts with a theoretical review. Then, we formulate propositions. Next, we explain our methodology. Finally, we present our results with a discussion and present the study's conclusions.

2 Theoretical framework

In this section, we initially explore international franchising, and then we examine international franchising in Brazil and the stages of internationalization. Next, we address issues regarding GMS and franchising. Finally, we offer some propositions.

2.1 International franchising

According to Ghemawat (2007), when considering a global strategy, most corporate and academic leaders make two assumptions: firstly, the main challenge is to balance economies of scale and the capacity to respond to local conditions; and secondly, companies should have the ability to operate locally and globally. These assumptions encapsulate the well-known "adaptation vs. standardization" dilemma that forms the basis of all international marketing-mix decisions.

The internationalization process of firms operating through franchising started with firms normally organized in chains in the United States of America, Europe and Canada.

For these brands operating first throughout their domestic economies, the main reason to start an internationalization process was saturation of the domestic market.

Merrilees (2014) reviewed the evolution of the theory of international franchising over the past two decades, describing 10 papers since 1990. Three time phases were identified: Phase 1--foundation theory-early 1990s; Phase 2--deeper explanation-late 1990s; and Phase 3--extending theory-after 2000, as shown in Table 1.

In early 1990s, two papers were selected--Huszagh, Huszagh and McIntyre (1992) and Eroglu (1992)--because they laid the foundation of the knowledge domain for international franchising.

Huszagh et al. (1992) combined the strategic competitive advantages of particular firms and the barriers to market entry of domestic franchisors in entering international markets strategically. The units of analysis were a comparison of domestic and international American franchisors. Huszagh et al. (1992) concluded that internal factors, rather than external factors, were critical determinants of the decision to introduce a franchise internationally.

Eroglu (1992) presented his article in the same issue of the International Marketing Review but with only a theoretical perspective. He proposed a model to analyze the determinants and processes of the internationalization of franchise systems. His model explains the intention to internationalize as a balance between perceived benefits and perceived risk. Organizational factors, such as firm size, experience, and top management's perceptions of the firm, are considered. His model is very important and has been used in studies in Brazil, such as Marques (2006), Khauaja (2010), Melo, Borini and Cunha (2014) and others.

As shown in Table 1, Phase 2 was in the late 1990s, and we selected two papers as important: Fladmoe-Lindquist (1996) and Doherty and Quinn (1999). We also included McIntyre and Huszagh (1995) as important at that time because these authors adapted stages of internationalization, based on Cavusgil and Nevin (1980), to franchising companies in the US, using the Uppsala Model.

Fladmoe-Lindquist based her paper on resource-based and capability theories and developed a capability theory of international franchising. She developed a two-by-two matrix, with low and high levels of existing international franchising capabilities, and she included global franchising brands in the high-high cell and domestic franchisors in the low-low cell. Further, she included "born global" franchising brands as those developed to expand abroad.

Doherty and Quinn (1999) referred to the notion of international retail franchising theory and examined components such as monitoring costs, opportunism, and risk management. McIntyre and Huszagh (1995) developed a stages model using Uppsala Model to describe the stages of internationalization of franchising companies from the US in four stages: domestic, experimental, active, and committed to internationalization.

According to Merrilees (2014), Phase 3 dates from after 2000, and the authors selected six papers: Quinn and Alexander (2002), Doherty and Alexander (2004), Altinay and Miles (2006), Cheng, Lin, Tu and Wu (2007), Aliouche and Schlentrich (2011), and Jell-Ojobor and Windsperger (2013). Quinn and Alexander (2002) emphasized the retailing context by reconciling domestic or international franchising choices. They developed a two-by-two matrix model with domestic (franchise or not) and international options (franchise or not).

Doherty and Alexander (2004) emphasized franchisor-franchisee relationships in the international franchising context. The relationships were based on trust, communication, and support, rather than on contract.

Altinay and Miles (2006) analyzed stakeholder issues using the stakeholder theory to provide a frame of reference to examine the decision-making processes involved in international franchising agreements.

Cheng et al. (2007) developed a five-stage model of international franchise expansion and created a conceptual model that described the process theory of international franchising.

Aliouche and Schlentrich (2011) developed a quantitative study of 143 countries with an emphasis on risk and opportunity tradeoffs based on determining the optimal decision.

Jell-Ojobor and Windsperger (2013) developed an integrative framework that investigated the determinants of international franchising governance models by combining organizational economic and strategic management perspectives. This topic is an important subject that requires more attention from researchers.

2.2 International franchising in Brazil

In Brazil, according to Marques, Merlo and Luchesi (2005), the motivations for the internationalizing of franchises were similar to those for retail...

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