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Archives of Business Research – Vol. 10, No. 1
Publication Date: January 25, 2022
DOI:10.14738/abr.101.11571. Sayl, Z. (2022). The International Business Environments of Franchising in BRICS Economies. Archives of Business Research, 10(01).
109-129.
Services for Science and Education – United Kingdom
The International Business Environments of Franchising in BRICS
Economies
Zineb SAYL
Department of Economics and Management
Ibn Zohr University, Agadir, Morocco
ABSTRACT
This article aims to analyze the factors that explain the growth and success of the
franchising in BRICS economies, and study the long-term relationship between
determinants and impacts of franchising in these economies. We propose a panel
data regression model for determining the factors affecting the franchising market
in BRICS economies. The model is designed for the time period of 2000-2019. We
use a Granger causality to study the long-term relationship between determinants
and impacts of franchising. The Results suggests that the development of
franchising in BRICS economies is determinated by economic, social, political and
legal factors. On the one hand GDP per capita and degree of International
competitiveness has a positive impact on franchise, so the purchasing power and
the level of individual income affect franchising investment. On the other hand, the
market size and level of urbanization have an important impact on franchising
investment. Although, there is evidence of interactions between determinants and
impacts of franchising in BRICS economies.
Keywords: Franchising, Emerging Markets, Employment Contribution, Domestic
investment
INTRODUCTION
The Franchising consists of a system where by a franchisor concedes to a franchisee, through a
franchise agreement: the right to use a trademark or a patent, the right of exclusive or semi- exclusive distribution of products or services; and the right to use deployment technology and
business administration or operating system developed or held by the franchisor. This
concession involves direct or indirect remuneration, without, however, being characterized by
a working relationship between franchisor and franchisee [1].
Franchising is one of the current great business success stories; it is the most complete form of
the associated trade. This business format provides the conditions to promote the business
sector, encourage the expansion of the activities of a company and ensure the improvement of
the quality / price of goods and services for consumers.
It general, there are two main factors that explain the growth of franchising in emerging
countries: the saturation of developed markets and search for new markets, and the
liberalization of emerging economies and improvement of their business environment [2].
Thus, emerging markets are a favorable context for the development of the franchise, because
they meet the conditions for the success of this business format. Alon (2001) [3], Singh (2010)
[4] indicates that the franchise investment in emerging markets offer many opportunities for
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Archives of Business Research (ABR) Vol. 10, Issue 1, January-2022
Services for Science and Education – United Kingdom
foreign investors by enabling international expansion of their activities and realizing significant
profits, while the domestic market access to new sources of economic growth, create job and
transfer the skills and technology.
In addition, emerging markets present several opportunities for international franchising, but
the economic potential varies according to the characteristics of each market. Alon (2006) [5]
examines how service franchises can assess the size of the market service sector; he compared
the size of emerging markets for service franchises based on World Bank information for 20
emerging markets. It showed that China and India are not necessarily the most promising
markets, so, they have a large market, as well as Brazil, Russia and Mexico are considered the
most markets attractive for service franchises, and beyond China and India in terms of
attractiveness of franchise service. Emerging markets comprise the most important and
dynamic markets for international franchisors, given their population, income per capita, rates
of urbanization, and income distribution. Per capita income is significantly and positively
correlated with the number of international franchisors in a host country (Alon, 2006) [6].
The importance of franchise industry encourages host countries to adopt several strategies to
promote this sector. In the Asian zone, specific instruments are adopted to facilitate the entry
of foreign franchisors: the relaxation of laws on foreign property as in the case of Indonesia,
and the adoption of international standards of protection of intellectual property as the case of
China [7].
Although, in this study, we aim to examine the factors that determine the success of the
franchising in BRICS markets, and study the long-term relationship between the determinants
and impacts of franchising in these economies.
EVOLUTION OF FRANCHISE MARKET IN BRICS ECONOMIES
The franchise sector in the BRICS countries experienced accelerated and continuous growth
between 2000 and 2019, with an advantage for China, followed by India. Also, this growth is
the result of the increase in the number of franchise networks and number of franchise outlets,
which almost doubled from 2009 to 2019.
The importance of franchise market is manifested by the turnover, the contribution to the
national GDP and the direct employment created by this sector.
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Sayl, Z. (2022). The International Business Environments of Franchising in BRICS Economies. Archives of Business Research, 10(01). 109-129.
URL: http://dx.doi.org/10.14738/abr.101.11571
Table 1. Evolution of franchise market in BRICS from 2000 to 2019
China India Brazil
2000 2010 2019 2000 2010 2019 2000 2010 2019
NBR_SYSTM
450
4
200
4
500
476
1
900
4
600
894
1
855
2
918
NBRE_OUTLE
TS_FR
50
000
365
000
400
000 27
600
100
000
200
000
46 534 86 365 160 958
NBR_JOBS 700
000
3 000
000
4 000
000
200
000
400
000
1 500
000 226 334 777 285 1 350
000
CONT_GDP 6,0% 8,9% 6,6% - 0,7% 1.8% 1,5% 2,1% 3,0%
REVENU-FR
(miliard USD)
20
000 - 47
800
1
100
7
500
51
000
2
281
14
345
46
300
DOMESTIC- BRANDS % 70% - 90% 25% 25% 25% 80% 93% 93%
FOREIGN- BRANDS % 30% 10% 75% 75% 75% 20% 7% 7%
FR_LAWS 0 1 1 0 0 0 0 1 1
Russian Federation South Africa
2000 2010 2019 2000 2010 2019
NBR_SYSTM
110
550
2
250
265
540
813
NBRE_OUTLE
TS_FR
10
000
30
000
100
000
19
800
28
520
47
923
NBR_JOBS 90
000
300
000
1 400
000
150
000 -
500
000
CONT_GDP 3,5% 4,3% 3,5% 8,4% - 13,9%
REVENU-FR
(miliard USD)
1
500
3
850
2
800 -
19
390
49
470
DOMESTIC- BRANDS % 70% 70% 65% - 89% 73%
FOREIGN- BRANDS % 30% 30% 35% - 11% 27%
FR_LAWS 1 1 1 0 1 1
Source: author
Franchising in China
In 2009, the franchise industry in China experienced rapid development, the number of
franchise systems crossed the threshold of 4,000, up nearly 15% from 2008. The total number
of franchised stores increased exceeded 330,000, and each franchise system had on average of
83 franchise stores according to China Franchise Market Report (2011) [8]. According to the
China Chain Store & Franchise Association (CCFA), as of 2019, China has more than 4,500
franchises and chains with more than 400,000 operating outlets, making China one of the
largest franchise markets in the world [9].
China adopted the first franchise law in 1997, but foreign franchising remained primarily a gray
area during this period until a new law was announced in 2005 that removed legal restrictions