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Chapter # 1 (Introduction)

1.1 Introduction
The dissertation aims to compare and critically investigate the entry modes available for fast food chain across different countries and critically compare them with the entry modes available to similar restaurants in Nigeria and Ghana. Firstly, the chapter discusses the background of the research and highlights the problems that will be answered by this research. Then the chapter discusses the motivation of the research,

research aims and objectives and research questions to highlight the areas which will be covered in the dissertation. The chapter also discusses the importance of the research and the significance of the research to highlight the significance of research to different participants in the society. Moreover, Modes of major Fast food chains the chapter also highlights the outline of all other chapters of the dissertation and then the summary of chapter is provided.
1.2 Background of the Study

In the view of Erramilli and Rao (1990), the consideration of entry modes is very important for any type of business which opts to expand in another country or territory. Different types of entry modes are broadly divided in two categories known as equity entry modes and non-equity entry modes. Modes of major Fast food chains Another common type of entry mode currently employed by business for international expansions is the agreement for sell or import / export

. According to Malhotra, Agarwal and Ulgado (2003), the entry modes further consist of different types under each classification; most commonly employed entry modes include licensing, franchising, strategic alliances, joint ventures and formation of subsidiaries in a new country. Out of these five, first two are non – equity based modes of entry and other three are equity – based modes of entry. There are other modes of entry such as indirect exporting, directing selling through a local distributor etc. but those are not feasible for the expansion of a fast food chain.

Above discussion highlights the commonly used entry modes around the globe; it must be noted that the application of entry modes varies around the different parts of the world. If a company is expanding in Europe then it may employ different entry modes as compared to expansion in African countries such as Nigeria and Ghana. The companies do consider the geography and economic conditions of the country while opting to expand their business (Malhotra, Agarwal and Ulgado, 2003). In accordance with Ekeledo and Sivakumar (2004), the entry mode selection also varies with the nature of business; it has been found that it is better to use non – equity based modes for the restaurants including fast food chains. It has also been discussed that the fast food chains most commonly employ the franchising or licensing approach to expand into other

countries.

This highlights that it is important to analyze the entry modes for the fast food chains in a particular country as the entry modes vary from industry to industry and country to country.
1.3Statement of the Problem
The research study revolves around the selection of appropriate entry mode for fast food chains in Nigeria and Ghana. The problem to be solved by the research is as follows:
“What are the appropriate entry modes for the major fast food chains in Nigeria and Ghana?”

1.4 Research Questions

Every research aims to answer few questions which help the researcher achieve the aims and objectives of the research. The research questions for this research are as follows:
• What are different categories of entry modes as per their classification and how are they applied?
• What are the appropriate entry modes for major fast food chains in Nigerian and Ghanaian markets?
1.5 Outline of the Chapters

The dissertation comprises of five chapters which are interlinked with each other. The five chapters are named introduction, literature review, methodology, analysis and discussion and conclusion and recommendation. The chapter one introduces the research, its aims and objectives and explains what the research aims to find out. The chapter two discusses the literature related to the research in detail both specifically and generally;

the literature review will be analyzed to discuss the findings of previous researchers who conducted research related to the topics. The chapter three discusses the methodology of the research in detail and highlights how the research will be conducted. The chapter four will analyze the data collected during the research and will help the researcher reach at the findings of the research. Lastly, chapter five will conclude the research and provide the recommendations for the target audience and future researchers.
Chapter # 2 (Context)

2.1 Motivation of the Study
The main purpose of the research is to analyze the entry modes for fast food chains in Nigeria and Ghana. The motivation behind conducting research on this topic is that the importance of entry modes has been increasing over the last few years and the companies including restaurants have started considering it as one of the important aspects while expanding into a new market. Considering the rising importance and the role of entry modes in the success of a business, it is important to analyze different types of entry modes in emerging economies like Nigeria and Ghana as the selection of appropriate entry modes is more critical in emerging economies.

2.2 Significance of the Study

The research has great significance for various participants because the consideration for entry modes has been increasing over the years. Firstly, the research findings will be benefit the researcher himself as it will be a great addition to my knowledge. Secondly, the research findings will benefit the major fast food chains and other restaurants in Nigeria and Ghana or the fast food chains aiming to expand in Nigerian and Ghanaian markets as the research will provide them appropriate entry modes for the expansion in other countries. The research is also beneficial for the government institution to design the entry modes in an industry according to the need of the industry and requirement of the time.
Chapter # 3 (Literature Review)
3.1 Introduction to Different Categories of Equity Modes
According to Pan and Tse (2000), it is important for every business to select appropriate entry mode before starting its operations in a new country. The selection of appropriate entry mode depends on the country in which the business is currently operating and the country where it wants to open the operations. Apart from the difference in the nature of economies, the selection of entry mode also depends on the nature of business.

In the view of Gilligan and Hird (2012), the appropriate entry mode for a service business moving to Ghana or any other country may be entirely different than the manufacturing business moving to the same country because the business dynamics are totally different. Franchising is very common in services business for internationalization but it has not proved that worthy for the manufacturing companies. Other than that financial resources available to the company is another factor; the choice between equity and non-equity based mode varies due to the resources available. Therefore, it can be stated that there are different factors that impact the selection of appropriate entry mode for a business expanding in a new country.

The entry modes to enter any new market are divided in two main categories which are equity based entry modes and non-equity based entry modes. As the name implies, equity based entry modes require new equity for the expansion of the business; whereas non-equity based entry modes do not require any additional equity (Malhotra, Agarwal and Ulgado, 2003). In the view of Root (2004), the non-equity modes of entry are more popular when the business wants to retain more management and investment in home country. On the other hand, equity based modes of entry are more popular when the business wants to keep more management and investment of new business in the host country so the selection between equity and non-equity modes of entry mainly depends upon the business strategy as well.

As discussed earlier, the selection of appropriate entry modes depends on the nature of business and economy it is expanding in. There are some entry modes which are commonly employed by different businesses around the globe for expansion. In the view of Blomstermo, Deo Sharma and Sallis (2006), the common entry mode for service companies is franchising; this is the most commonly used entry mode among service companies including restaurants. However, service companies also go for equity based entry modes such as joint venture and strategic alliances.

On the other hand, manufacturing companies employ different entry modes as per their need; they mostly go for indirect exporting or subsidiary based entry mode. The franchising is not common in the manufacturing industry around the globe as it is in the service industry (Brouthers and Brouthers, 2003). The commonly employed entry mode in developed countries varies from those of developing countries; businesses in developed countries may employ direct exporting instead of indirect exporting which is famous in developing societies due to various reasons (Kogut and Singh, 1988). This shows that the non-equity based entry modes are more commonly employed than equity based entry modes because they do not

disperse ownership rights and management control.

3.2 Importance of Selection of Appropriate Entry ModeIt is often argued by the researchers that the success of an expansion by business heavily depends on the selection of appropriate entry mode. It is important to select the optimal entry mode considering the nature of business and economies because the entry modes not only incur the initial cost but they contribute in the operational costs as well. For example: If a company selects franchising as an entry mode for their service business then they will have to pay the loyalty fee and some commission to the franchiser. Likewise, there are some costs associated with each entry mode including both non-equity based and equity based entry modes (Hollensen,

2007). In the view of Hill, Hwang and Kim (1990), there is no one entry mode which is applicable in every case; the selection of appropriate entry mode varies from case to case. They believe that companies must analyse their scenario in detail before selection of the entry mode because there have been many cases in the past when companies have failed solely due to the selection of inappropriate entry modes. It has also been argued that the national culture plays a vital role for proving the selection of an entry mode right or wrong so it is important that the selection of entry mode must be made in a way that it is supported by national culture. Therefore, the selection of entry mode is an important decision while expanding the business in new territory or country which can play a vital role in the success of business (Kogut and Singh, 1988).

3.3 Equity Based Entry Modes
In the view of Schmidt and Hollensen (2006), there are different types of equity based entry modes which can be employed by a company while expanding its operations. For common types of equity based entry modes are discussed below:
1. Wholly Owned Subsidiaries: When a company decides to go for wholly owned subsidiary, it has 100% equity ownership in the business being established in a foreign country. This strategy is often used when companies acquire a currently running company in that country or build a new plant in a foreign country. This entry mode is employed by both service and manufacturing companies which have capital available to expand the business. The disadvantage associated with this strategy is that 100% losses are borne by the parent company as they have total control over the new unit and they are the

only owners (Pan and Tse, 2000).
2. Joint Venture: A joint venture refers to a business entity formed by the alliance of an international company and local owners of the country. It can also be formed by the alliance of two international companies operating in same industry most likely. Joint venture results in lower control for the management of international company as compared to wholly owned subsidiaries because the equity is not fully owned by a single party.

The joint venture is often used when the company believes that the outcome of the project is volatile. The disadvantages of joint venture mainly include loss of control over the subsidiary and shared profits for the international company (Tse, Pan and Au, 1997). According to Schmidt and Hollensen (2006), the international company can lose control over the newly established subsidiary if it is not able to maintain the 51% shares with itself. In this case, the decision making will be done by the local investors and can distort the interest of the country.
3. Strategic Alliances: In the view of Whipple and Frankel (2000), a strategic alliance often refers to the equity based partnership between the international company and its competitors,

customers or suppliers. There are many scenarios when the strategic alliance is the appropriate entry mode as it allows the companies to access new products and markets, provides faster entry to new markets and often results in lower costs as the capital costs are shared. The strategic alliance is sometimes also referred to as joint venture as the equity is contributed by two different groups. The strategic alliances are common in both service and manufacturing businesses. The strategic alliances exist in short run but those businesses are taken over by one partner after some years. The failure rate of strategic alliances is also high because two companies often employ different strategies so there is a conflict of interest and decision making in strategic alliances (Tse, Pan and Au, 1997).
4. Mergers and Acquisitions: The international companies often consider merger with a big company or acquisition of a small company to expand their business in new country because the other company may have better knowledge of the economy where the business is being expanded. The merger also has some disadvantages associated with it because the strategies of two companies might be contradicting and it may be difficult for management of two companies to merge (Doole and Lowe, 2012). Though the acquisition is an attractive mode of entry for any business but it also involves higher risk because usually acquisition involves a company which is struggling to thrive in the market so it may not be possible for company to get that business running and make it successful. There may be already negative image of that company or products of that company in the market (Doole and Lowe, 2012).

3.4 Non – Equity Based Entry Modes

There are various types of non-equity based entry modes which can be employed by the firms while expanding to the foreign markets. Different types of non-equity based entry modes are discussed below:
1. Exporting: According to Erramilli, Agarwal and Dev (2002), Modes of major Fast food chains the exporting is a mode of non – equity based entry mode as businesses export their goods to other countries for sale. They do not start operations in the target country specifically, rather they tap the market by exporting the goods and services to that country. Two different types of exporting as an entry mode include the indirect exporting and direct exporting. Further,

in the view of Schmidt and Hollensen (2006), indirect exporting refers to exporting the goods through home based exporters; one main advantage of indirect exporting is that it is easier and quicker than the direct exporting by every mean and the disadvantage includes the higher costs incurred by the company as compared to the direct exporting. Direct exporting refers to the export of goods by some department or entity operating within the producing firm. Since the cost of trial has been lowered due to the e-commerce business model so the companies can try direct exporting before moving to indirect exporting (Hill, Hwang and Kim, 1990).

2. Licensing: Second type of non-equity based entry mode for foreign expansion is licensing. Licensing refers to a contractual agreement by which another person or company can use the patent, trademarks or products produced by the company. Usually licensor is compensated for this contract by a licensing fixed fee and based on sales usually 2% – 5% of total sales of licensee (Hill, Hwang and Kim, 1990). According to Erramilli, Agarwal and Dev (2002), licensing has gained attractiveness over the years because the regulatory authorities have started protecting the patents and trademarks actively around the world. Patent holders have also started suing the violators of their patents as the awareness has increased as a whole. The most common type of licensing agreement is franchising; it is an agreement in which one international company allows another company to operate a business with the name of international company. The franchisee gets a well-established name, procedures to be followed and carefully managed marketing strategy to be followed. The franchisee expects support in other areas from the franchisor as well;

those areas include operations, supply chain, marketing etc. Franchising is very common for service companies in general and restaurants in specific. Many big fast food chains have also been established by the franchising model around the world; the example of these fast food chains include McDonalds and KFC. Both of these firms expanded on the basis of franchising model (Doole and Lowe, 2012).

3. Contract Manufacturing: This refers to a management contract in which a company provides another firm the responsibility to produce on its behalf; the product specification are provided to the other company and main company assumes responsibility for marketing only (Root, 1994). The potential problem of this entry mode is that the quality of products can be deteriorated as the production is outsourced and it can lead to lost customers or dissatisfied customers but this entry mode is often employed by manufacturing firms when they cannot expand their production facilities in an efficient way (Hollensen, 2007).

These are non-equity based modes which are more often employed by the companies when they do not want to invest directly in another economy. International companies use both equity based and non-equity based entry modes depending on their need and condition of the economy or industry specifically.
3.5 Common Entry Modes for Companies
The focal managerial exchange off between different methods of business entry is highlighted as the terminology in the middle of control and risk. From one perspective, Modes of major Fast food chains low authoritative methods of entry minimize hazard. In this way, contracting with a wholesaler obliges no external investment in the market such as work places, circulation offices, dealing staff or campaigns. Under the typical course of action,

the merchandiser takes title to the merchandise (i.e., purchases them) as the facility of production is left by the global organization (Pan and Tse, 2000). These transactions do not even include the credit risk, accepting that the bank of wholesaler has issued a letter of credit. This plan additionally minimizes control; in any case, following the global organization will have practically zero contribution in many components of the plans of marketing, including the amount to spend on advertising, dispersion of goods and services and the standards of services (Harzing, 2002). Specifically, it ought to be determined that viable control over the operations of marketing is unimaginable without convenient and precise business sector data, for example, behavior of customer,

potential market share, value levels, etc. As a rule, less intensity methods of business investment remove the global firm, since outsider merchants or operators desirously watch the character and purchasing behavior of their clients because of a suspicious fear of disintermediation (Johnson, Scholes and Whittington, 2008). Such control must be acquired by means of greater intensity methods of business sector investment, including investments in advertising, distribution and executives projects in the local region. This is really a trade off as the organizations does not have the ability to have it all, yet must discover trade off arrangements. The truth of the matter is that control just originates from contribution, and association just originates from venture (Wild, Wild and Han, 2014).

Another imperative qualification highlights the differences between marketing and financial risk. Financial risk is generally the significant consideration at the purpose of entering the market and financial risk is the terminology that has been minimized by lower intensity methods of business sector investment (Christmann, Day and Yip, 2000). Then again, this risk takes a stab at the cost of less control over marketing system, so that actually market risk is boosted, with a nearby accomplice settling on all the imperative decision of marketing. It is the longing for more prominent control over the business, such as to reduce the risk of marketing that clarifies the typical developmental methodology of expanding

responsibility and commitment (Dow and Larimo, 2009).
Harzing (2003) presented the different methods of entry can subsequently be recognized by the decrease in the trade off of risk control (see Figure blow). Also, there are various focuses that ought to be borne at the top of the priority list about each.

Figure 1: Different methods of entry
(Source: Harzing, 2003)
Other than the method analyzing above, there are various other methods that are a mode of entry in a market. These methods include the exports and imports, the trading companies analyze the volume so that the profitability can be evaluated while entering into the business (Kwok and Tadesse, 2006). Other method is piggybacking, albeit such courses of action are infrequently highlighted in the context of global business, numerous organizations start their internationalization deftly through various selection of plans that may be portrayed as piggybacking,

in light of the fact that they all include exploiting a channel to a worldwide market as opposed to selecting the market of nation in a more routine way (Slangen and Van Tulder, 2009). Meyer (2004) elaborated the most well-known type of piggybacking is to internationalize by offering a client who is more universal than the seller firm. Hence, a client asks for a request, conveyance, or administration in more than one nation and the supplier begins offering globally with a specific end goal to hold the client and builds its entrance of the account.

Franchising is an under investigated entry mode in global markets, however it has been broadly utilized as a fast strategy for extension inside of main developed markets in Western Europe and North America, most quite by fast food chains, buyer service organizations, for example, inn or auto rental, and business administrations. On the most fundamental level, franchising is suitable for replication of a plan of action or organization, for example, a fast-food retail configuration and menu (Moon, 2002).
3.6 The Size of Global Fast Food Market and Trends
The fast food market around the world grew very rapidly over last few decades when people realized value of their time and wanted fast food to save their time but the growth has slowed down over last few years mainly due to the consideration of hygienic food around the globe. Now people are more conscious about the hygienic food rather than saving their time (Urban, Robers, Fierstein, Gary and Lichtenstein, 2014). The total size of global fast food market in terms of revenue is $191.03 billion with approximately…