Franchise Firm Entry Time Influence on Long Term Survival

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Table of Contents

Introduction
Reasons for Choosing the Article
Aim of the Author
Position of the Author
Structure and Organization of Paper
Synopsis
Evaluation of Strengths and Weakness
Conclusion and Recommendations
Works Cited

Introduction

The article “Franchise firm entry time influence on long term survival” by Juste et al. (2008) presents a rather interesting outlook on franchise firm survival by focusing not on the market forces of supply and demand or even on methods of sustained development through management innovation, diversification and subsequent product development but rather it focuses on the concept of early entry as being a highly influential factor in the long term survival of a franchise firm.

This is a particularly interesting position to take especially when considering the fact that nearly 90% of all early entry businesses into new markets or new businesses with innovative approaches to address a particular need within a specific niche market fail within the first 5 years.

Taking this into consideration, the Juste et al. (2008) article should prove to be rather enlightening in terms of the innovative approach it has taken in discussing franchise firm survival especially when considering the breadth of research that apparently went into its creation.

Reasons for Choosing the Article

The main reason this particular article was chosen was due to its focus on the long term survival of franchises through early entry into a particular market. It presented the reasons as to why late entry into a market by a rival franchise often has a far lesser chance of survival as compared to a franchise that has already been well established within the local community.

On the other hand, another reason why I chose this particular article was due to the fact that upon reading it I discovered that the authors neglected to examine the extent of influence that a powerful brand could have on consumers.

While the article was able to connect early entry into a market with long term survival there were few factual points which reference the strategies that franchises utilized in order to survive in the long term.

This I believed was one of the inherent weaknesses of the article since based on my perspective brand promotion over a number years can have a power influence on consumers which leads to continued patronage and the survival of a franchise despite the entry of rivals into market.

As such I endeavored to research various cases involving well established corporations and sought to examine instances where improper/proper methods of innovation and change were utilized in order for them to continue surviving within their chosen market segments.

Aim of the Author

In the case of Juste et al. (2008) study it can be seen that the aim of the author was to show how franchises in Spain established in the early 1950s – 1980s and reach up till the present have been able to survive for so long due to their early entry into the market. This was done by comparing the survival rate of franchises at later dates and how they were unable to usurp the position of franchises that were established much earlier.

It is based on this that it can be assumed that the overall goal of the author was to prove that when it come to investing into a particular franchise or entering into a particular market it is best to do so as a market pioneer especially in cases where franchises are established in new international locations.

Position of the Author

The position of the authors in the case of this article is one where it is apparently recommended to invest into well established and well known franchises within a new market and in cases where new markets are found to become a pioneer into that particular market in order to take advantage of the first entry position.

Structure and Organization of Paper

For this particular paper a brief synopsis will be provided which points out exactly what Juste et al. (2008) set out to accomplish after which comes the evaluation of the strengths and weaknesses of their study.

In that section various articles will be compared to that of Juste et al. (2008) along with various case examples in order to test the veracity of their arguments. Lastly, the paper will conclude with recommendations regarding what could have been done in order to improve the Juste et al. (2008) article in order to “fix” the apparent weaknesses found by this examination.

Synopsis

The initial argument that Juste et al. (2008) presents is that entry time influences the type of strategic decisions a firm can employ as well as its long term survival.

In order to prove this point the Juste et al. (2008) study set out to examine the Spanish franchising industry from the latter half of the 1950s till 2004 in order to examine the extent from which long term survival could be determined from early entry into the Spanish market. They did so by examining catering (food restaurants) and fashion outlets as their primary subjects for examination.

It was their hypothesis that the earlier the entry of a particular franchise into the Spanish market the more likely it was to establish itself and result in long term survivability. On the other end of the spectrum the study also assumed that in cases where late entry was seen there would be a lesser degree of market survivability due to the presence of already well established brands (Juste et al. 112 – 115).

It was through this method of examination that Juste et al. (2008) looked to prove its assumption of long term survivability of first mover franchises within particular markets.

Evaluation of Strengths and Weakness

When evaluating the strengths or weakness of a particular article it is important to examine the factual points brought up by other articles in the same category in order to determine the effectiveness of the arguments being presented in the article that is being examined.

In the article of Ordish (2006) it can be seen that early and late entrants into a particular market had varying operational and management strategies which Ordish (2006) explains is a direct result of having to contend with different market situations (Ordish, 30).

Ordish (2006) goes on to state that in the case of early pioneers into a particular market there are rarely any other competitors and as such this enables them to establish a customer oriented rather than a competitor oriented strategy (Ordish, 30).

What must be understood is that there are three components to market orientation that dictate how a company acts within a competitive environment, these are: customer orientation, competitor orientation, and inter-functional coordination.

In the case of customer orientation a company spends what resources it has in gathering data on the needs and behaviors of various consumers, the same can be said for competitor orientation however it focuses on competitors instead (Smeets and Yingqi, 949 – 961)

It must also be noted that either method has a distinct weakness. Focusing too much on consumer orientation can actually blind a company to changes in the market or may actually stifle innovation since the company focuses too much on consumer satisfaction rather than changing based on trends (Smeets and Yingqi, 949 – 961).

Focusing too much on competitor orientation on the other hand results in too much time and capital being placed on competitive activities which results in companies at times neglecting their consumer bases and focusing too much on getting ahead of the competition (Relationship and innovation orientation in a business-to-business context, 59).

On the other hand both methods also have their own respective strengths such as the customer orientation strategy being more effective in uncertain markets whereas competitor oriented strategies become effective in fast growing markets (Smeets and Yingqi, 949 – 961).

Taking this into consideration, Costa (2011) explains that in cases where a company is the first mover in a particular market this gives it a considerable advantage by the mere fact that it can focus on a customer oriented strategy without having to worry about subsequent problems related to inter-market competition within the immediate future (Costa, 22).

This allows the company to develop itself as a viable brand and develop a well established reputation within its chosen market through a strategy that focuses more on developing proper relations with consumers. Costa (2011) goes on to state that “the power of a well established brand should never be underestimated since it can enable a company to persevere in the face of severe competition via the strength of its brand alone” (Costa, 22).

This particular statement by Costa (201) is in direct relation to what Juste et al. (2008) defines as “pioneering advantages” in the case of franchise firm entry times. From the perspective of Juste et al. (2008) “pioneers benefit from brand loyalty, higher switching costs and pre-emption of scarce resources such as locations, brand reputation or customer preferences” (Juste et al., 108).

One of the inherent weaknesses of the Juste et al. (2008) article was the fact that it neglected to elaborate on the possibility of new competitors armed with either more potent resources or capabilities from entering into the market and overtaking a first mover franchise’s market share. One particular case example where this is evident is the fall of Blockbuster and the subsequent rise of Netflix within the past 10 years.

What is notable in this particular case is that Blockbuster originally had a dominant position in the U.S. market. It had 3,000 stores and controlled 95% of the video rental market however it is interesting to note that its business model didn’t change much over time.

The chain was a first mover in entering into a sales structure that focused on providing consumers with as wide a selection of movie choices as possible and this proved to be a particularly wise business decision.

Combined with thorough brand awareness the chain was able to dominate the U.S. market and showed all the advantages indicated by Juste et al. (2008) as belonging to a pioneer in a particular market segment. By the late 1990s though it is obvious that Blockbuster was so competitor centered in maintaining its dominant position that it neglected to examine changes within its consumer base.

In fact it was at this point that online e-commerce systems which enabled consumers to make purchases online started to proliferate which enabled new companies to enter into previously hard to enter markets due to the flexibility and low cost nature of online sales and consumer marketing (Movies At Home, 33).

When Netflix began its online video rental service in the latter half of the 1990s this gave consumers a faster and more convenient method of video rental which subsequently eroded away at Blockbuster’s market position till by 2005 to 2009 when Netflix released its online video streaming service this could be considered the “final nail in the coffin” so to speak resulting in the dominance of Netflix and the complete erosion of Blockbuster’s previously dominant position (Movies At Home, 33).

Based on this case example it can be seen that entry time into a market by a franchise cannot be stated as a prelude towards long term survival without a certain degree of contention.

Juste et al. (2008) fails to elaborate more on this particular aspect and merely glosses over it by mentioning it on just a single line. This I believe is an inherent weakness in the article since it fails to take into account subsequent changes in markets via innovations and new market paradigms that are relevant in today’s way of doing business.

For example, first mover firms such as GE (General Electric) and IBM which have been around for more than several decades have moved along with market trends and innovations in order to continue to stay relevant in the present day. While it may be true that the paper focuses more on franchises rather than firms this lesson is still applicable.

First mover franchises need to stay relevant within their prospective markets by changing along with new consumer tastes (Relationship And Innovation Orientation In A Business-To-Business Context, 59).

This was seen by some of the new dietary innovations enacted by restaurants such as Wendy’s, Burger King and Olive Garden in order to keep pace with a consumer market that is slowly but surely turning towards healthier options in their food choices.

This push towards franchise innovation is lacking within the Juste et al. (2008) article and as such is a lapse in what needs to be present in any long term survival strategy. A single line does not do the concept justice since it is an integral aspect for any franchise.

On the other hand the article does present viable arguments in relation to the first mover principle which should not be immediately discounted. One of the first factors indicated by the article is that in cases of international expansion firms that enter early could achieve better locations within a market before it becomes overly saturated and more franchise chains look for more suitable locations.

One case example where this is evident is that of the Kenny Rogers franchise and its expansion into the Philippine market. It is rather interesting to note that within the U.S. the Kenny Rogers franchise never truly took off due to market saturation of similar restaurant franchises having the same product offering (Franchisee considers selling its Roasters restaurants, 3).

Due to dismal sales in its home market the franchise took the rather risky route of expanding abroad into new markets where such a degree of market saturation wasn’t evident (Franchisee considers selling its Roasters restaurants, 3).

One of the primary locations the chain expanded into during the latter half of the 1990s was the Philippines due to its English speaking population and the fact that archipelago had embraced various aspects of U.S. culture.

The result was phenomenal, due to the restaurant chain being one of the first to offer American style dishes and combo meals this enabled the company to expand into various ideal locations before other franchises of a similar type arrived within the country.

To this day the franchise has continued to survive within the Philippines despite stiff competition since it has continued to retain many of its original locations that it had expanded to. This particular example confirms the results indicated in the Juste et al. (2008) and shows that the study does in fact have credence to the facts it presents.

Conclusion and Recommendations

Overall the article showed a great deal of promise in showcasing how entry times into particular markets greatly influenced the long term survivability of particular franchises.

In fact it was quite effective in doing so by presenting data from the 1950s onwards showing how franchises that entered into Spain in the latter half of the 1950s to the 1980s were able to survive and thrive well into 2004 while others that hand entered later into the market were at greater risk of closure.

What I did notice though was the fact that the study was missing distinct details related to brand awareness and how particular brands can become incorporated into local cultures to such an extent that they become indivisible aspects of it.

What must be understood is that as franchises continue to grow within particular population centers their advertising initiatives combined with continuous consumer consumption of products actually integrates the brand name of that product into the local culture.

This results in better product awareness which translates into distinct consumer patronage for particular brands. Such an aspect has been documented by numerous studies yet it is strangely absent in this one. It must also be noted that a company’s strategies do change over time depending on changes within the market.

For example, as mentioned earlier customer orientation strategies are more effective in uncertain markets whereas competitor oriented strategies become effective in fast growing markets, the inherent problem with this is that markets tend to change over time as seen in the case of Netflix.

As such when markets change this necessitates changes in orientations as well with companies at times shifting towards either customer oriented or competitor oriented strategies. This was similarly glossed over by the article which should have mentioned it due to the fact that anticipating changes in markets and adapting to them is an integral factor in any franchises long term strategy.

It is based on this that it is recommend by this article critique that any future article that deals with the relation between entry time and long term survival should also include sections relating to the power of brand awareness and how this connects to the process of being pioneers into a particular market.

By having this particular aspect included into the study readers will be able to understand how branding plays and integral role in helping to ensure long term survivability. With the study as it is now in the present some readers may in fact assume that being an early pioneer into a particular market is all that is necessary to succeed.

This particular assumption would be fallacious and would cause many individuals to neglect the necessity of proper brand development and promotion. As such in order for people not to get the wrong idea in the future it will be necessary to include aspects related to the interconnectivity between brand development and early pioneering in order to present readers with a “full picture” of how the process actually works.

Works Cited

Costa, MaryLou. “First-Movers In Market For A Change Of Address.” Marketing Week (01419285) 34.42 (2011): 22. MasterFILE Premier. Web.

“Franchisee considers selling its Roasters restaurants.” Wall Street Journal – Eastern Edition 29 Dec. 1995: 3. MasterFILE Premier. Web.

Juste, VictoriaFirst, Laura Palacios, and Yolanda Redondo. “Franchise firm entry time influence on long-term survival.” International Journal of Retail & Distribution Management. 37.2 (2008): n. page. Print.

“Movies At Home.” Consumer Reports 74.3 (2009): 33. MasterFILE Premier. Web.

Ordish, Rebecca. “Testing The Franchising Waters In China.” China Business Review 33.6 (2006): 30. MasterFILE Premier. Web.

“Relationship And Innovation Orientation In A Business-To-Business Context.” South African Journal Of Business Management 41.4 (2010): 59. MasterFILE Premier. Web.

Smeets, Roger, and Wei Yingqi. “Productivity Effects Of United States Multinational Enterprises: The Roles Of Market Orientation And Regional Integration.” Regional Studies 44.8 (2010): 949-963. International Security & Counter Terrorism Reference Center. Web.

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