SME Franchising in Kuwait

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Table of Contents

Abstract
Introduction
Background
Research Methodology
Conclusion
References

Abstract

Franchising has become a very popular expansion approach for many entrepreneurs. This can be seen from the large number of franchises sprouting up all over the world. Franchising can be categorized as either trade name franchising or business format franchising. This research proposal examines franchising and SMEs in Kuwait. It seeks to determine the advantages and disadvantages of franchising, and to ascertain why local entrepreneurs in Kuwait are not franchising their businesses.

Introduction

Franchising refers to the license or right that a government or company grants to an individual (or group) to operate their markets in a given territory. A franchise can therefore be defined as a special form of licensing whereby the franchisee purchases intangible property from the franchiser. The franchiser insists on setting the rules for the franchisee on how to run this business.

Franchising is therefore a system of doing business and at the same time a marketing tool for commercial entities to rapidly expand their market share using less resources. There are two main forms of franchising namely trade name franchising and business format franchising. Bill (2000) stated that there are two basic ingredients forming the basis of franchising, which include the license to the franchisee to operate under a trade name using trade or service marks, associated with the franchisor and the franchisor’s continuing control over the franchisee’s operations. Hence, it’s necessary to know why franchising became the dominant economic process.

Some companies have pursued international franchising to expand beyond a saturated domestic market or to establish a presence in the international market before the competition can establish itself. Moreover, international franchising can also assist enterprises in distributing their costs and associated risks across the entire network of outlets.

According to Burton et al (1955), international franchising is a mode of entering a foreign market which involves a relationship between the entity in the host country and the entrant. In this arrangement, the entrant transfers a business package developed by the host entity under contract. International franchising is therefore a unique mode of entry, and is different from foreign direct investment, licensing and exporting. It was adopted very fast in the developed countries and helped other countries economic to grow and expand their enterprises.

The recent growth experienced in international franchising can be attributed to the emergence of newly industrialized countries in the global market, the establishment of regional trading blocs, diminishing profits in the domestic market, liberalization of eastern bloc countries, competition, and need (Alon, 2006).

Background

The Kuwaiti population is considered as a consumer-oriented population due to the fact that in the mid 1970s and 1980s its work force was working entirely in the government sector. The government sector gave Kuwaitis financial security and economic stability. A government job meant a secure job for life; this security played an important role in the inception of the financial institutions, competing banks, and financial companies.

The Kuwaiti economy, on the other hand, has grown profoundly with its Gross Domestic Product (GDP) and the population growing in parallel. This created huge revenues in the local banks, but has created gaps in the market. For instance, the Kuwaiti local market has a great need for methods of creating new business opportunities and SME’s expansion. This is due to the fact that franchising contributed to about 10 percent of the world’s GDP and about 14 percent of the world’s total retail sales (Mondelsohn, 1995).

Available data from the Kuwaiti’s economic sectors revealed that the Kuwaiti market is also confronting certain limitations in its GDP. The government has found these limitations to have a negative impact on SME’s expansion and growth, hence adopting franchising. The need for establishing a new trend for future franchising necessitated the understanding of the reasons and obstacles that prevent business owners in Kuwait’s local market from pursuing SME growth and expansion.

A research in franchising has examined a wide range of issues that need to be classified as SME growth determinants. These issues include societal, legal implications of franchising, franchised and company –owned units, and the efficient operation of franchise systems (Scott, 2004).

Research Methodology

This research will be conducted using a database outlined in a questionnaire, which is based on relevant theories and hypothesis. These theories and hypotheses will be used to write a thesis that will analyze the factors and obstacles that could either help Kuwait’s SMEs to expand by themselves or help in the development of franchising in Kuwait.

Information for this research will obtained from various sources, including business owners and professionals. The topics researched will mainly be from foreign market franchising case studies as well as international franchising method of entry. These methods will however be modified in order to fit into the local market in Kuwait.

The literature used in this research will be from sources on the subject of interest, such as research from recognized franchising owners, articles, periodicals, and relevant text books. The thesis will start with an overview and general information about franchising and business expansion obstacles. It will then take an overview of local franchising markets. The research will also analyze the country’s readiness to implement the franchising approach, either in the local or international market. Other issues to be considered in the discussions will be the role of entrepreneurs, social and culture conflicts, size of enterprises, and resources in Kuwait.

The exploratory methodology that will be used centers around conducting survey questionnaires to end users so as to understand obstacles that answer why franchising was not adopted in Kuwait. Hence, the franchising factors and the socio-economical issues will be documented in order to address issues related to the potential of implementing the franchising approach in Kuwait.

Conclusion

Since the proposed methodology is informative and exploratory in nature, statistical information will be collected from the planned sampling procedures in order to determine the possibilities of expanding the franchisee’s market into a local franchise. Based upon the results of the quantitative methodology, it is anticipated that the findings will help in achieving the desired goals.

References

Alon, I. (2006) ‘Service franchising: A Goal perspective’. ISBN: 978-0-387-28182-7.

Bill, H. (2000) ‘ How to franchise your business’. The Irish Franchise Association. Bill Holohan and Associates.

Burton, F.N. Cross, A.R. (1955) ‘ Franchising and foreign market entry’. In International Marketing Reader, Paliwoda, S.J. Ryans, J.K., London:Routledge, 35-48.

Mondelsohon, M.(1995) ‘New nank franchise finance scheme introduction in UK’. Franchising World, Vol.27(1). 69-70.

Scott, W. (2004) ‘Factors influencing the decision to adopt multiple unit franchising arrangements’. Department of Marketing, Griffith Business School, Griffith University.

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