Newman Business Review
El Dr. Rosado posee experiencia en el desarrollo de empresas y gestionó su propia cadena de venta y servicio en telecomunicaciones por más de 18 años. Cubre varias áreas de investigación como
internacionalización de franquicias, estrategia de entrada de pymes, negocios familiares, cyberseguridad, historia de la empresa, y manejo y preservación de documentación, particularmente la fotografía y archivos digitales. Posee un PhD en Comercio Internacional de la Universidad de Puerto Rico, y un segundo PhD en Gestión Estratégica y Negocios Internacionales de la Universidad de Sevilla.
Alexander Rosado-Serrano 1
1 Universidad Interamericana de Puerto Rico. Catedratico Auxiliar en Comercio Internacional
El crecimiento exponencial de la franquicia, sobre todo en Estados Unidos, con una forma de gobierno democrática, ha sido el resultado de un entorno económico estable, de ejemplos empresariales inteligentes de franquiciadores y franquiciados. Del mismo modo, la franquicia se ha beneficiado de la participación de asociaciones industriales, así como de la voluntad política y de normativas favorables. Esta estabilidad económica y social ha permitido a este formato económico crecer a nivel nacional y ser una importante estrategia de internacionalización para las marcas estadounidenses. Del mismo modo, ha sido una estrategia adoptada en economías emergentes y no democráticas. El propósito de este artículo es ofrecer una visión de la franquicia internacional a través de la lente de la diplomacia y proporcionar diferentes vías de investigación en las áreas de diplomacia corporativa, gastrodiplomacia, diplomacia alimentaria. Esto es importante en la era de la antiglobalización y de los movimientos de boicot de los consumidores.
Recibido: 08 de noviembre del 2024. Aceptado: 10 de noviembre del 2024. Publicado:
31 de diciembre 2024
Este es un artículo de acceso abierto, distribuido bajo los términos de la licencia Creative Commons Atribucion - No Comercia_Compartir Igual 4.0 Internacional.(http://creativecommons.org/licenses/by-nc- sa/4.0/) que permite el uso no comercial, distribución y reproducción en cualquier medio, siempre que la obra original sea debidamente citada.
Palabra clave: franquicia, diplomacia empresarial, gastrodiplomacia, comercio internacional, estrategia de salida, conflictos.
Franchising exponential growth, particularly in the United States, with a democratic form of government, has been a result of a stable economic environment, savvy entrepreneurial examples of franchisors and franchisees. Similarly, franchising has benefited from the participation of industrial associations as well as political will and favorable regulations. This economic and social stability has permitted the economic format to grow domestically and be an important internationalization strategy for US brands. Similarly, it has been a strategy adopted in emerging and non-democratic economies. The purpose of this article is to provide a view of international franchising through the lens of diplomacy and provide different avenues of research in the areas of corporate diplomacy, gastrodiplomacy, food diplomacy. This is important in the era of anti-globalization and consumer boycott movements.
Keywords: franchising, corporate diplomacy, gastrodiplomacy, international business, exit strategy, conflicts
The word franchising has been found to be first used in Central Europe in the Middle Ages as the right to use in some instances, in others to the right to vote (Webber, 2013). Webber (2013) argues its origins can be traced to the Roman Empire. Franchising from the perspective of economic activity can be traced back to mid the 19th century with the industrial revolution and has its origins in United States (Rosado- Serrano, 2023). The first application of the business format franchising was done by Singer Sewing Machines and McCormic Harvesting Machine Company in 1850. Both companies implemented what we now consider a traditional sales approach where their representatives were organized and measured for their performance (Dicke, 1992). Still, Plitt (2019) attributes Martha Matilda Harper with the Harper Shops as the pioneer of this business format. Harper Shops gave opportunities to women to open their own business in a time, they even weren’t allowed to vote. Her system expanded internationally with over 500 shops by 1920 (Dant & Grunhagen, 2014; Rosado- Serrano et al., 2018) from the US to Europe and Canada (Plitt, 2019). Therefore, franchising has been historically a strategy and a form of business organization that provides opportunities and accessibility of a proven system to individuals and other businesses in its country of origin and abroad.
By the early 1930’s we see the development in United States of the familiar brands in franchising such as Kentucky Fried Chicken (KFC), Burger King (BK) (1954) and McDonalds (MCD) (1955) (Ortega Burgos & Martín Jimenez, 2015). These brands started to internationalize early on. On July 11, 1963, Burger King opened their first location outside the US in the Commonwealth of Puerto Rico, which for some economic activities, is considered foreign and to others domestic (Rosado-Serrano, 2023). Puerto Rico is an unincorporated US territory with a local self-government and republican form of territorial government (CIA.GOV, 2024). During this decade, MCD and KFC also started their internationalization process, but decided to expand to United Kingdom (Rosado-Serrano, 2023) and MCD particularly to Canada (Tschoegl, 2007). Similarly, during the same period, brands under the franchising model from France started to expand to Spain. It is important to remember that during this period,
the European Union has not been formed yet. Many other U.S brands started to internationalize by the 1970’s due to high domestic competition (Aydin & Kacker, 1990; Cheng, Lin, Tu & Wu, 2007).
Similarly, as the franchising model starting to gain traction as a solid form of internationalization, industrial associations came into existence to give an underpin to all these ‘entrepreneurs’ that had developed this system and were expanding domestically and internationally. In 1960 the International Franchise Association (IFA) was formed in the US, in 1972 the European Association of Franchising and 1993 the Spain Association of Franchising (AEF). These associations had been lobbying for public policies and regulations that favor franchising as well to promote education about the franchising model (Rosado-Serrano, 2023).
Research on international franchising is relatively new. Most of the research attention has been in the last 30 years (Rosado-Serrano et al., 2018) and has been mostly focused on internationalization antecedents & motivations (Alon & McKee, 1999; Elango, 2007; Madanoglu et al, 2017), partner selection and relationship management (Rosado-Serrano & Paul, 2018), and optimal size (Rosado-Serrano et al., 2019). Yet currently, there is no dominant international franchising model (Rosado- Serrano & Paul, 2018) and scholars continue to explore the phenomena.
We can indicate the business format franchising had its origins in what we now call entrepreneurship, the underpin of economic development in countries. These entrepreneurs in their beginning just followed their instincts, and the interest of governments just followed the economic results. In occasions, we can see a favorable intervention by politicians, government policies and regulations. In other instances, the intervention and view does not favor the economic model. In this paper, we aim to present the different political elements that influence the franchising model, particularly as an internationalization strategy in the 21rst century. We propose that diplomacy must be integrated in the analysis of international franchising as a new lens to comprehend the phenomena in a dynamic and complex political and economic environment.
This paper is structured as follows. In the second section we discuss franchising and political systems. In the third section we discuss franchising in emerging economies. In the fourth section we discuss diplomacy studies. In the fifth section we discuss franchising, non-democratic regimes and political conflict. On the sixth and final section we discuss the important elements that currently influence international franchising and provide future lines of research.
The business format franchising model, in its domestic and international applications has its origins in the United States. This establishes its inception has been under a democratic form of government. At this time, there are 2.6 million businesses worldwide that operate under the franchising model (Rosado-Serrano, 2023) and it represents 3% of GDP in the US, with 792,000 business and 8.5 million jobs created (International Franchise Association, 2022). In Australia, it represents 9% of GDP with 90,309 businesses and 514,761 jobs created (Global Franchise Team, 2021). Indeed, franchising represents an important part of economic development and particularly under a democratic form of government, regulations, and policies.
In the U.S we can attribute the first government intervention in fostering the industry through the Small Business Administration (SBA). During 1967 to 1979, the SBA approved over 18,000 loans particularly toward franchising (Small, 2017). These loans had an attempt to revitalize traditional downtowns particularly in areas that were affected by racial segregation (Danovich, 2017). The government and country leadership takes this industry very seriously by developing regulations and agencies that oversee its operation. In the U.S franchising is overseen by the Federal Trade Commission, Department of Labor and subject to complex employment regulations including the latest joint-employer doctrine that is a risk to the franchising model (Carvell & Sherwyn, 2017). The franchising model is based on the notion that two different legal entities (franchisor and franchisee) operate under the model and the joint-employer doctrine aims to extend the liabilities from the franchisee to the
franchisor, and this is partly motivated by unions and government agencies (Carvell & Sherwyn, 2017).
Not all government and the leader’s involvement are directly related to formal government operations. In the U.S it has been normal to see Presidents like Bill Clinton visit McDonalds during his tenure as commander in chief (Cooking Channel TV, n.d.). During his first campaign trail, Donald Trump was photographed eating KFC on his private plane (Zaru, 2016). When you look at other countries such as Spain, the head figure for this country is the king. In this case, the king figure is very curated and most of the official images from the royal family are toward a traditional meal in the ‘home’. It will be very difficult to see the king endorsing a private brand, this is not the case in the U.S where president’s visit companies and in the case of franchising, there has been a direct endorsement for many years by democrats and republicans.
Industrial associations have also expanded their influence more than promoting and educating about franchising. The International Franchise Association also has a political action group and directly endorses political candidates that favor the franchising model and regulations. Recently, there has been an increase of endorsements toward republican candidates in the Senate and House of Representatives. It can be said that franchising has a fertile ground under democracy. Nevertheless, as other industries, it’s highly regulated and subject to global tensions arising from regional and trade wars, nationalism, pandemics, and new economic tendencies.
Franchising represents a strong industry, particularly in the U.S, Australia, France, Spain as you may find their franchise systems being actively exported internationally. Depending on its configuration, in some markets they operate as wholly owned subsidiaries with a high percentage of corporate stores, and in others almost with all units in a franchising agreement. Because on occasions, franchise systems involve a higher FDI, it’s important to comprehend how their operations have been influenced and are managed in foreign political systems (Adam & Filippaios, 2007).
Evidence shows the franchising model positive benefits for developed economies, yet there are different results when we look at emerging markets due to a possibility of inadequate political, legal, economic, commercial, and socio-cultural infrastructure (Ba Bihn & Terry, 2014). For example, when you look at the African continent, franchising is strong in South Africa, Egypt and Morocco and less examples in other countries in the region (Siggel et al., 2006). In Asia, you may see also varying developments and government intervention. In Malaysia the first law and government intervention toward this nascent industry was in 1992, while on Vietnam a regulatory regime was established on 2006 (Ba Bihn & Terry, 2014). On the contrary, in Cambodia, there are no laws or regulations on franchising and there are no industrial associations; leaving the franchisor setting his own rules for the franchisees (Phin et al., 2023).
In Latin America there has been a stronger representation of domestic franchise development as well as international franchising as hosts and exports. In Mexico, there is a strong presence of US brands as well as other international ones. In Guatemala, Corporación Multi Inversiones, a family controlled MNE from, has expanded internationally their brand Pollos Camperos thru franchising (Rosado-Serrano, 2016). Similarly, Argentina presents a strong market for domestic and international franchising, receiving brands such as Carrefour from France, Dia from Spain, as well as the known US brands.
Franchising in the South America region is strong, particularly in Brazil, which is host for the biggest franchisee for McDonalds, Arcos Dorados. They even have their own Hamburger University. We can say that even though the region is experiencing a tense political atmosphere, franchising has made a significant footing in the continent.
On the other hand, when we observe franchising in the African continent, the experience for franchisors its different. Although there are 56 countries on the continent, only a few have the presence of international franchisors. South Africa is very strong for MCD, but Zimbabwe has a low presence. Different elements may be attributed to this such as tough agricultural policies and supply chain constraints based on this. Similarly, there have been boycotts to McDonalds in Morocco based on the
Gaza conflict. In addition, they had other issues in the past regarding offensive promotions & toys. Thus, for this franchise, the presence in the African continent has been limited and with different conflicts.
One of the needs of franchising is the basis of control and for this a strong regulatory framework is needed to be in play, particularly in international markets. For example, most franchisors in the US and abroad, create their franchise packages (Franchise Disclosure Agreements) where they present the prospectus, possible return and risks involved in English. This must be done prior to signing the franchising contract and its regulated. When you observe a market like China, for their contracts to be enforceable, they must be written in Chinese. Nevertheless, a contract does not bind a business relationship, and this is particular in this country. Roberts, Frazer and Thaichon (2022) found that in China, franchisors need to adopt a more relational approach with their franchisees instead on relying on contracts. In addition, the regulatory structure in China, particularly toward franchising is challenging because of stringent requirements (Roberts et al., 2022). Franchise regulations started in China in 1997 with the Interim Franchising Measures that only focused on describe what was franchising instead of establishing a regulatory regime (Ba Binh & Terry, 2014).
Rosado-Serrano and Paul (2018) developed a model for international franchising based on trust and commitment. Parties know how the contract starts and how it ends leaving the dynamics of the relationship more fluid through a relational contract. Still, the dynamics of international business may require on occasion relinquishing control, one of the tradeoffs in franchising. For example, MCD corporate had difficulty managing the Chinese market even as they had native managers. To maintain their presence in China, they had to relinquish all control, including products to a native operator due to cultural and managerial differences (Quartz, 2016). Depending on the franchising industry segment, other challenges might be found such as counterfeiting.
Corporate Diplomacy can be defined as nonmarket strategies developed by corporations to influence country diplomacy and international relations (Li et al., 2022). Studies on diplomacy in the past had been focused on specific business practices of multinational/international firms (Monteiro & Meneses, 2015). Corporate diplomacy may be more than public relations or other corporate communication processes and strategies (Westermann-Behaylo et al., 2015). Ordeix-Rigo and Duarte (2009) indicate that corporate diplomacy may also be a way for corporations to become ambassadors of a country, a concept, or related values. Westermann-Behaylo et al (2015) indicate that corporate diplomacy is an umbrella concept that integrates the areas of political corporate social responsibility, international relations, diplomacy, and peace studies. Companies may implement public relations efforts to recognize and respond to societal demands and gain organizational legitimacy. Therefore, it’s important to highlight that corporate diplomacy builds upon public relations and aids the MNC to demonstrate their commitment to societal issues in the host country society (Marschlish, 2022).
Albeit the positive implications of searching for a stable international economic scenario, not all are in favor of corporate diplomacy. There has been hesitation from the business side due to economic, political, and educational reasons, and vice versa from the government as its objects companies get involved and become leaders in foreign affairs (Bolewski, 2019). As the current geopolitical world scenario is underpinned by realism (Li et al., 2022), corporate diplomacy is still a very important tool for companies to survive and thrive as it can play a role in resolving political and social conflicts (Westerman-Behaylo et al., 2015).
Mayer-Heft and Samuel-Azran (2022) define Gastrodiplomacy as the promotion of culinary culture to foreign publics to achieve diplomatic objectives. Suntikul (2017) indicates that gastrodiplomacy is the group of policies and practices that seek to place a positive association with a national brand among foreign publics. It may be used by
state and non-state actors. This is a relatively new field of research and there is limited empirical and theoretical studies (Mayer-Heft & Samuel-Azran, 2022). Some scholars have explored its application as a strategy for national identity and cultural heritage for humanity (Ting Lee & Shik Kim, 2021). Gastrodiplomacy can be also called, smart diplomacy and during her tenure as Secretary of State, Hillary Clinton highlighted the importance of all elements of a state dinner (Spence, 2016). All important discussions take place at the dining table and elements such as the table form (rectangular or round), ceiling height may influence the relational information-processing (Zhu & Argo, 2013). Gastrodiplomacy is an important strategy with countries that are in good relations and with countries that might be seen as adversaries or enemies. In 2018, Donald Trump was the president of the United States met with North Korean Chairman Kim Jun-un and the details of their dinner were highly analyzed (Matwick & Matwick, 2020). This dinner and how it went is an important study as Donald Trump has been known to favor eating US fast food franchises. Thus, the study of food and diplomacy has been an intrinsically part of embassies and political studies.
As we have outlined earlier, franchising has been one of the most influential forms of export/licensing related activity from United States to the world. Although there are different examples of multinationals companies that operate through the franchising model, McDonalds (MCD) has created without a doubt a name for itself as an economic changer in host economies as it transforms the existing supplier base while transferring know how to local managers (Tschoegl, 2007). In emerging markets, it has provided an entrepreneurial underpin to further strengthen weak or nonexistent support industry and its related economic spillover effects unto the economy. Thus, historically, in occasions it has been received with relative positive perspectives, and as the economic and political landscape changes in foreign locations, the perspective changes.
this initial expansion to Canada was as their HQ were in Chicago and there was a
McDonalds first internationalization effort was in 1967. Tschoegl (2007) argues
geographic proximity. On that same year, they expanded also to Puerto Rico, a Commonwealth of the US. Important to indicate that BK, who was headquartered in Miami, expanded in 1963 to Puerto Rico (Rosado-Serrano, 2023; Tschoegl, 2007). Later in 1970, it entered Costa Rica and by 1990’s it has expanded to China, Russia and other international locations. By 2003, it had reached 120 countries and become a flagship of international franchising in the foodservice sector.
This international expansion has been exposed to different legal, political and economic challenges that affect international business. For example, in Venezuela, MCD had a hard time trying to register their trade name (Coriat & Linares, 1989) as different legal effects and regulations came into play. When they entered Saudi Arabia, the licensee was a member of the Saudi Royal Family (Tschoegl, 2007).
MCD participation in the Russian economy since 1990’s created spillover effects that benefited not only the corporate operation, but it also created a strong supplier base that exported products to other countries in Europe. Their operation relies on corporate locations, something that is done in other markets where the franchisor feels more comfortable, wants to have more control and feels confident in the legal environment and growth prospects. Madureira, Sergeenko and Zaimeko (2023) studied the fast-food industry during the Russia-Ukraine through the lens of intelligence studies. They analyzed the reaction of MCD,YUM! (KFC), and Subway when the conflict arises and the public backlash in forms of boycott called through social media. MCD was the first to exit and their decision was with less friction than the other two as Subway had more difficulty as they operated with franchisees in the market. Their reaction was more difficult as they relied on third party for its operation. Madureira et al (2023) found that in conflict environments companies that operate in wholly owned subsidiaries and franchise models, must change to non-equity modes like exporting or licensing.
Franchising has followed an incremental approach to international expansion like other industries (Barkema & Drogendijk, 2007). There is no doubt that franchising continues to be an important growth strategy for brands when their domestic markets are saturated. Although international franchising has been fueled by globalization, there has been challenges such as geopolitical shocks, terrorism and politically motivated trade restrictions that had affected its expansion, an in occasions retraction from some countries.
To address the dynamics of geopolitics, scholars and corporations must use a multidisciplinary approach drawing from international relations, international business, and nonmarket strategies (Li et al.,2022). It is important to address these challenges by developing collaborative relationships between the private sector and the government and apply processes used in crisis management (Bolewski, 2019) as the problems faced affect both entities. One approach that may be used in a dynamic and challenging international environment may be corporate diplomacy. By integrating a diplomacy approach corporations become more committed toward society and at the end improve the social system and government efficiency (Ordeix-Rigo & Duarte, 2009). Not only traditional MNE will benefit from implementing a corporate diplomacy strategic component, but current international franchisors must also explore the risks of their model in the different international markets they operate.
Li et al., (2022) consider the rise of China as one of the challenges in the current geopolitical order. At this time, U.S.- China rivalry affects any efforts in corporate diplomacy developed by multinational companies (Li et al., 2022). Similarly, the war in Ukraine and in Gaza presents challenges to multinational corporations. Currently, MCD CEO Chris Kempczinsky indicates the restaurant chain is receiving pressure for different groups as a cloud of misinformation is covering social media regarding their position toward the Israel/Hamas conflict (Ruffino, 2024). It is critical for franchise systems to implement a corporate diplomacy approach in their international management of the system and market entry/exit decision. Similarly, as other
Public Opinion/Social Media
Corporate diplomacy program/strategy
Private Controlled Companies
Service to B2B Non-equity modes
Market Driven Investment or Public Controlled
Full franchising
Plural forms (corporate/franchise)
strategies in public relations and marketing, nowadays, public opinion in social media may influence any corporate diplomacy approach a company might develop. The examples from MCD and other fast-food chains in the Russia-Ukraine conflict require that companies rely on more accurate and fast data analysis and their response regarding this multilateral operating risk. On figure 1, we show the research agenda we propose toward the effects of international franchising and corporate diplomacy. We theorize that companies in private control or that do service to other business might be less exposed or subject to pressure from public opinion and social media. By opposite, it has been shown that there is significant public pressure on public firms and companies that engage in franchising, particularly in the food industry as some have been victims of boycott campaigns. Based on this we provide the following propositions for future research streams regarding corporate diplomacy and public relations. First, does a corporate diplomacy strategy component/department does create a positive response to the overall operation? Second, does a corporate diplomacy strategy component/department benefit more a company that engages in franchising or others that doesn’t?
Figure 1- Research agenda on corporate diplomacy and international franchising
Thus, this research agenda focuses on an inward looking of the firm as well as constant observation of political and social movements that arise from the increased use of social media. We highlight this in Figure 2. The implemented corporate diplomacy program or strategy needs to be constantly adjusted based on home and host government politics and regulations. Similarly, it may be influenced by spontaneous social media movements that might also be based on host or home country.
Figure 2- Constant dynamics influencing Corporate Diplomacy
We feel that corporate diplomacy is a formidable tool/strategy for operating in a dynamic economic and political environment as the possible benefits might be more positive as the challenges it might pose to implement. At the time of submission of this article, in the USA, Donald Trump succeeded at the polls and will return as the 47th President of the United States of America. As discussed earlier, this will put again international franchising and its role as a diplomatic tool soon in this dynamic international scenario. This article presents a view of the current scenario regarding corporate diplomacy, international franchising and political systems. Because of this,
there are limitations such as a deep case study or empirical analysis of the phenomena. We recommend future lines of research to explore a longitudinal case study of a multinational company engaging in franchising and other empirical research toward helping us comprehend better the phenomena. On Figure 2, we present
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