Frontiers of Entrepreneurship Research
1996 Edition
SUMMARIES

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A RISK ASSESSMENT MODEL FOR FRANCHISING ENTRY STRATEGIES IN HIGH RISK MARKETS: DEVELOPING THE TAXONOMY


Sandra Honig-Haftel
Ron Christy

Wichita State University
Center for Entrepreneurship
Wichita, KA 67260-0147

Telephone/Fax: 316-689-3000 / 316-689-ENTP

Principal Topic

Hedging against risk in the high-risk, challenging markets of Central and Eastern Europe is broadly the subject of this study. The strategy of a single major franchisor in several different emergent risky markets is used as the basis for developing a three-dimensional taxonomy for risk assessment. The study moves toward development of a set of propositions to be operationalized and tested in further research leading to performance- based, strategic entry models.

Method

This study utilizes qualitative research methods of a multiple-case study design with emphasis on a longitudinal case in Russia. The research builds from multiple observations of Pizza Hut and other food service initiatives in the risky markets of Central and Eastern Europe. Data were gathered on site in 1993 , 1994, and 1995. A cross-national series of case studies of entry into risky markets was designed to investigate alternative strategies for penetrating such markets. Systematic procedures of grounded theory were used to develop theoretical propositions from empirical data. Other data sources included interviews of company executives and archival data including minutes of meetings.

Major Findings

Observed were distinct emergent strategies in three country groups with three different perceived risk levels. Countries with moderate to high risk, such as Russia and the Ukraine seem to facilitate joint venture arrangements as the entry strategy of choice. In the highest risk countries (Rumania, Bulgaria, and Slovenia), the strategy is to enter with franchises. In countries with lower relative risk, such as in Poland, Hungary, and the Czech and Slovak Republics, the entry strategy of choice is company-owned franchisor units. Degree of complexity of the entry business model also varies with degree of risk. In less risky countries, where equity ownership by the franchisor was the entry strategy of choice, flagship 150-seat restaurants and multiconcept business models were selected. In both moderate and high risk markets, the developmental business strategy was entry with flagship restaurants, expansion with "multi-concept" units, and growth primarily through use of kiosks. The paper presents a taxonomy of franchise entry strategy in risky markets based upon these observed patterns.

Implications

The study has value to both practitioners and academics because it builds a taxonomy of franchise entry strategy in risky markets that could lead to a predictive model that would help to minimize risk in high-risk markets. Observations of entrepreneurship in emerging markets even in the early stages of research are of considerable value to guide practitioners. Extension of the research logic to the development of specific research hypotheses that may be tested empirically is beyond the scope of the study at this time, but may be possible in the future as sales data over long periods of time are gathered.

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