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DOUBLE YOUR TROUBLE THROUGH INTERNATIONAL FRANCHISING: ARBY'S GOES TO MEXICO

Frank Hoy

College of Business Administration
University of Texas at El Paso
El Paso, TX 79968-0545

Telephone
(915) 747-5241

Fax
(915) 747-5147

Mauricio Hoy Echegaray

Opal 1425 Homero, 204
Col. Polanco
Mexico, D.F. 11560
MEXICO

Phone
Oll 52 16 557-5253

Fax
Oll 52 16 395-4360

Principal Topics
Franchising today represents approximately one third of all retail sales in the United States. Forecasters project that market share to rise to 40% or more by the turn of the century. Franchises are also becoming major U.S. exports. As an international market entry strategy, franchising is a variation of a licensing arrangement. In licensing, a domestic company gives a foreign firm the right to produce and market its products in the licensee's country in return for a royalty on sales. Franchising typically extends the arrangement to the business system. This study investigates the entry of Arby's fast food franchises into Mexico. The process of launching franchises is examined in the context of international market entry strategies. The conformance and variation of the Arby's experience to entry models is described and implications assessed.

Methodology
Case study methodology was selected for this analysis because of the authors' access to Arby's master franchisee for Mexico and to a subfranchisee for which the second author works as Director of Operations. Thus, the primary method of data gathering is participant observation. Interviews were conducted with the owner of the master franchise and with executives of the subfranchisee. Information was obtained from senior managers of Arby's USA and from various franchise units in Mexico. The second author completed the Arby's training program in Mexico City, gained experience in multiple tasks in various units, participated in negotiating sites for units and construction, and opened, staffed and managed a unit.

The case study benefits from the introspection of the participant observer. It is also placed in the greater context of business and economic development in Mexico. External events impacting the venturing process include the debate and implementation of the North American Free Trade Agreement and the assassination of Presidential Candidate Colosio. Additionally, general trends regarding franchising are examined, including a literature review of conflict between franchisors and franchisees within the U.S. and between U.S.-based franchisors and their foreign franchisees.

Major Findings
The history of Arby's entry into Mexico is an almost classic story of a reluctant American firm being drawn into international commerce by a tenacious foreign enterprise/entrepreneur. Arby's initially rejected overtures from Mexico, but was finally persuaded by an aggressive but well prepared business owner. The master franchisee took virtually complete responsibility for launching the Arby's franchises, including translating training materials and operations manuals. Arby's provided virtually no direct assistance in country.

The subfranchisee found that virtually nothing occurred in accordance with the business plan. Everything took longer and cost more than projected. A sluggish economy combined with over building at a mall location and lack of product recognition contributed to massive shortfalls in actual sales.

A change of executive leadership at Arby's USA has brought new interest to the Mexican operations. Promises have been made regarding a major promotional campaign. both master franchisee and subfranchisees are optimistic but remain concerned about whether they may have launched their ventures at too early a stage of development of both Arby's and the Mexican economy.

Major implications
This study supports the stereotype of U.S. business entry into international trade; i.e., it is the foreign partner that takes the initiative. The U.S. firm brings little international expertise to the table, but develops an interest over time as the profit potential becomes more apparent. The U.S. firm is slow to move the learning curve in adapting to foreign cultures and markets.

The study has numerous implications for becoming a franchisee outside the U.S., obviously with specific reference to Mexico. The only accurate predictions about time and cost forecasts are that they will be exceeded. Professional expertise, particularly legal, should be sought in the country at as early a state as possible. Conformance to country conditions and mores is essential. Franchises enhance the likelihood of successful venturing by providing a prover. model. Nevertheless the model must be adapted while, simultaneously, heavily promoted in a new market.

Efforts are made to assess and modify international market entry strategy models. In particular, the applicability of existing models to the peculiar mode of franchising is critiqued.

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