Explain Why Franchising Is a Logical Choice for FDI in the Fast-Food

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The Answer is Franchising is essentially the service-industry version of licensing, although it normally involves much longer-term commitments than licensing. With franchising, a firm licenses its brand name to a foreign firm in return for a percentage of the franchisee's profits. The franchising contract specifies the conditions that the franchisee must fulfill if it is to use the franchisor's brand name.
A good example of the franchising strategy is McDonald's, which allows foreign firms to use its brand name so long as they agree to run their restaurants on exactly the same lines as McDonald's restaurants elsewhere in the world. This strategy makes sense for McDonald's because (1) like many services, fast food cannot be exported, (2) franchising economizes the costs and risks associated with opening up foreign markets, (3) unlike technological know-how, brand names are relatively easy to protect using a contract, (4) there is no compelling reason for McDonald's to have tight control over franchisees, and (5) McDonald's know-how, in terms of how to run a fast-food restaurant, is amenable to being specified in a written contract (e.g., the contract specifies the details of how to run a McDonald's restaurant).

Explain Why Franchising Is a Logical Choice for FDI in the Fast-Food

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